6

I currently have a 401k through my company. I'm saving nearly the maximum $17,500. While the company matches the first %6.

If I leave in a couple of years I will be %50 vested and my balance will probably be around $40k.

My ideal situation after leaving my job is to make a living working temporary or contract positions. This way I have a lot more time off.

My question is, what would happen with the 401k balance after leaving my job? What if I never contribute anything towards it? Based on my research so far, it seems like the best idea would be to put it into some kind of IRA. If I do that, what does the money in the IRA do as it sits there 30+ years until I reach retirement age?

Does the money that sits around in the IRA gain interest? How much and how in the world do you figure it out?

Thanks in advance for any information.

Improve this question
2
  • 2
    I think you need to learn a lot about the basics of 401k accounts (you cannot contribute unless you are an employee and earning wages) and IRAs (where you think money just sits around). But, after learning a little more, look, for example, at this question and its answers.
    – Dilip Sarwate
    Commented Jan 10, 2014 at 22:45
  • 1
    Your 401(k) investments are probably mostly mutual funds which will likely be converted into cash. It is possible some can be converted in kind (this can be done with individual stocks for sure). But most of it will probably get deposited into your IRA as cash where you decide how you want to invest it.
    – Craig W
    Commented Jan 10, 2014 at 22:51

2 Answers 2

Reset to default
5

IRA and 401k are investment accounts. 401k accounts may be limited in what you're allowed to invest in more than the IRA, but still - these are investment accounts. The money you deposit in them - is invested, per your instructions.

What happens to it is up to you.

When you leave your job, if you have some unvested match balance in the 401k, it may be refunded back to your employer, but your own contributions are always vested.

Improve this answer
3
  • Thanks for that. This is probably a separate question in itself but, the main reason I am contributing to the 401k at the moment is to save on taxes (lower my taxable income). I wouldn't want to lose these tax saving after leaving my job and I also want nothing to do with worrying about investing money. Is there some kind of option where I can move my money into a "non-investment" retirement fund?
    – user12584
    Commented Jan 10, 2014 at 22:53
  • 1
    A quick Google search will give lots of pages that tell you your options for handling a 401(k) after you leave your job, e.g. fidelity.com/retirement-planning/learn-about-iras/…. But the tax savings has already been realized so you don't have to worry about losing that unless your cash out your 401(k) and don't roll over to an IRA. If you don't want to worry about investing, just put it all into a target date fund at somewhere like Vanguard.
    – Craig W
    Commented Jan 10, 2014 at 23:08
  • 1
    There are numerous Q&A that answer this exact question. What OP can do, what he should do, etc. A number appear to the right ---->>> under "related"
    – JTP - Apologise to Monica ♦
    Commented Jan 10, 2014 at 23:43
1

If you leave your job with money that you contributed to the 401K, the company will have a policy about whether you can leave the money in the 401K or whether you must take it with you. I have normally seen that if it is a small amount, then it must be taken and if it is over a certain amount (maybe $10K) then you have the option of leaving it in the account or taking it out.

If you take it out, then you should contact a brokerage first and get instructions from them for how to have it transferred into a rollover account to avoid having to pay tax. If the company makes the check out to you or transfers money into a non-retirement account, then they will very easily cause a taxable event and they will likely withhold tax from the payment.

If you leave the money in the 401K after you leave, you will generally have fewer investment choices, higher fees, and you may have higher risks. Occasionally companies in hard times fraudulently raid their 401K accounts and when this happens it can be very difficult to get it back. (For examples see the Dept Of Labor page at http://www.dol.gov/ebsa/newsroom/criminal/main.html and look for 401k or retirement in titles).

As far as having the money invested for several years, that time can be your friend if you get a reasonable rate of return. Over 30 years your money should be able to double multiple times. (At 8% return it will take less than 10 years to double the money. [see http://buyupside.com/calculators/doublemoneyfeb08.htm])

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .