What to do if You Get Laid Off and Have a 401K

If you’re one of the millions of people who are out of work, your finances are weighing heavily on your mind. Even if you’re laid off, you should assume you won’t be getting called back to work. In addition to looking for work, you should think about the best way to manage your 401k savings. This guide will help you determine what to do with the money in your 401k account in that situation.

Leave Your 401k Account Active

You can choose to leave the 401k account intact. You wouldn’t be able to contribute to the account any further since you’re no longer working for that employer, but your investments could continue to accumulate growth. There are a few drawbacks to consider with this option. First, your ability to change, add, or drop investments may be limited. Secondly, you may need to communicate with your former employer when you need to make changes to your 401k account.

Roll the Funds Over

You have two options in rolling your 401k funds over into a different retirement account. If you have a new job and your employer also offers a 401k package, you can deposit your funds into that account. Even if you withdraw the funds from your 401k instead of a direct transfer, you can still avoid tax penalties as long as the full amount is deposited into the new 401k account. You can also roll the funds over into an IRA or self-directed IRA account.

Cash Out

You can also choose to cash your 401k account out, and this is especially recommended for accounts valued at less than $5,000. You will still have to pay income taxes on the amount cashed out, and you’ll likely be charged with a 10% early withdrawal penalty. However, you can use the leftover funds to help you meet your financial obligations while you’re out of work.

Ultimately, how you handle your 401k funds will be your decision. Since each person’s situation is different, you should decide how best to handle your retirement savings. If you have an accountant or financial advisor, you may want to consult them before making any money moves. Your goal should be to protect your savings as much as possible as you bounce back from financial problems.