How long can you keep a 401k?

Once you retire or leave your employer for another job, you won’t be able to contribute to your 401(k). Usually, after you leave, you must decide what to do with the old 401(k) left with your former employer. Depending on how much you have accumulated in your 401(k), your employer may be willing to continue managing the 401(k) money or you may be forced to cashout or rollover to another retirement account. 

You can keep your 401(k) for as long as you want, even after leaving the employer's company. However, you must have at least $5,000 in your 401(k) for the plan administrator to continue managing your retirement money. If your balance falls below $5,000, the employer may force a rollover to an IRA, or force a cashout.

When happens to your 401(k) when you leave?

If you are leaving your job for another employer, you still own the retirement savings in your 401(k). However, since the 401(k) is offered by your employer, you won’t be allowed to make further contributions to the account. Depending on how much money you have in your old 401(k), you may be allowed to leave the money behind, or the employer may force a rollover or cashout.

If you have contributed over $5,000 to your 401(k) by the time you leave, you can leave the money with the employer until you decide what to do with the money. As long as the balance remains above $5,000, you can leave the money with the employer for as long as you want. It costs money to manage the 401(k) account, and any fees incurred in managing your 401(k) will be charged to your account.

If you had accumulated less than $5,000 but above $1,000, the employer may be unwilling to keep the money. Instead, the employer will move the 401(k) money to an IRA of its choice until you provide instructions on what to do with the money. However, before the involuntary rollover, you can be allowed up to 60 days to cashout or rollover to your IRA or new employer’s 401(k).

If your 401(k) contributions are below $1,000, the employer will force a cashout. The employer will liquidate your 401(k) investments and send you a check. You must cash the check into another 401(k) or IRA within 60 days to avoid owing taxes and penalties.

What to do with 401(k) once you leave your employer

Once you leave or quit your job, you have several options with your 401(k) money. These options include:

Do nothing

If you have built a substantial nest egg and you like the investment mix and the 401(k) fees are low, leaving your 401(k) money behind could make sense. Usually, employers are willing to continue holding your 401(k) money if you have accumulated $5,000 or above in your 401(k). However, if you are not impressed with the old 401(k)’s investment options, you should consider other options.

Rollover to an IRA

If you are looking for greater freedom with your 401(k) money, you can choose to rollover to an IRA. Start by opening an IRA with a brokerage or financial institution, and request a direct rollover to your new account. Usually, a direct trustee-to-trustee rollover does not create a tax event, and you will receive your full 401(k) balance in your IRA.

One of the benefits of rolling over to an IRA is the wide selection of investments. You can compare the investment options available in an IRA to find the investments with the lowest fees. Unlike a 401(k), you won’t be limited to the investment options handpicked by your employer.

If you have several other old 401(k)s left with former employers, you can use an IRA to consolidate these funds for easier management.

Rollover to new 401(k)

If you quit your job for another employer, you should confirm if the new employer has a 401(k) plan and when you are eligible to enroll in the new 401(k). A rollover to the new employer’s 401(k) might be a good idea if the new employer’s 401(k) has unique investment options and lower fees than the old 401(k).

Once you enroll in the new plan, you can request a direct rollover to the 401(k) plan. Usually, you will be required to fill out some paperwork and provide your new 401(k) details that your former employer will use to transfer the retirement money.

Alternatively, you can opt to receive your 401(k) balance in form of a check. The former employer will issue a check with your 401(k) balance, and you must deposit the check into the new 401(k) within 60 days from the date of issue. If you miss the 60-day deadline, you could owe income taxes on the distribution, and an additional 10% penalty for early distribution.

Withdraw the 401(k) money

You are allowed to make a withdrawal from your old 401(k), but unless you are in a financial emergency, financial advisors caution against it before retirement. A better alternative is to transfer the old 401(k) to Beagle to unlock your 401(k) retirement savings. Beagle allows you to borrow against your old 401(k) money at 0% net interest.