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I'm planning to sign up for a 401(k). However, I'm not sure what happens if and when I change jobs.

  • What happens to the money I deposit?
  • What happens with employer matches?

Can you please give me an example (with some random numbers) of what would happen?

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In the end it is your money. when you leave your job you will be given a few options if you have money in the 401k:

1) Leave it in the 401K account with the employer. You won't be able to contribute anymore, but you usually CAN keep the money there with no issues. For balances less than $5K, the employer can force you to take the money out of their plan (see options 2-4). I don't generally suggest doing this. Option 3 gives you a lot more flexibility and usually less fees on the account.

2) Roll the balance into a new employers plan.

3) Roll the balance into a self-directed IRA or Roth IRA (Depending on the type of 401K)

4) Cash out the balance - EXTREMELY bad idea. You can lose up to 40% of your money through penalties and taxes doing this.

The employer match is slightly more complicated. You will want to look at the employer's vesting period. Any employer match that is not vested, they will likely not let you keep. However YOUR contributions belong to you and they can't legally take that.

Clarification on the vesting period:
Companies have the option to specify a vesting period to encourage you to stay with them longer. How this typically works is that whatever you put in the 401K, they will contribute an additional amount (usually less than 10%) of their money to your account with a string attached, that you only get to keep the money they put in the account if you stay with the company at least X years.

In many cases they have a vesting schedule something like this:

Years at company     Employer Match You can take with you**  
1-3                  0%  
4                    50%
5                    100%

The vesting period never applies to money YOU put in the account, only what the employer contributes.

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  • Great answer, thank you! Any chance you can add an example? The vesting period part is not clear enough for me.
    – Ruslan Osipov
    Feb 19, 2015 at 20:46
  • Using the chart at the end of John's question, if you contributed $100 and the employer also contributed $100, then you left after 4 yrs and 6 mos, you would get to take $150 with you if you leave (the $100 you put in plus 50% of the $100 the employer put in). If you wait 6 more mos to leave, you would get to keep the full $200 because you will become 'fully vested'. If you left before the 4 yr mark you would only get to take $100 because the vesting at that point is 0%.
    – Jeff Lambert
    Feb 20, 2015 at 17:11
  • I assume that the vesting applies separately to the match on each individual payment? i.e. if you contribute $100 in year one, then $100 in year six, with the employer matching 100% on both, and then you leave in year six, you can take the first $100 match with you but not the second (for a total of $100) - correct?
    – user20774
    Feb 24, 2015 at 23:51
  • Doesn't work like that Jerome. Well not exactly. If you are 50% vested, then you are entitled to take 50% of the total employer match when you leave. It is as simple as that.
    – JohnFx ♦
    Feb 25, 2015 at 19:32

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