Why your 401(k) might not be available after you leave a job

Imagine that you have just quit your job to accept a new offer inside or outside your city that will represent a great professional and financial opportunity for you. Possibly, this new job meets all the requirements of your dream job, including a long holiday season and various productivity bonuses.

However, you should keep in mind that once you say goodbye to your old job for whatever reason, you can’t leave it all behind.. After all, you have a 401(k) account with your former employer and there is a large amount of money that belongs to you, right? Now, what options do you have in a case like this? Well, transfer the money from your old 401(k) to your new employer’s retirement account, collect the money, or roll it into an IRA.

Yes, be very careful. What you decide at this point could affect the amount of your tax payment to Uncle Sam. In addition, there is a topic that we have not touched yet. To make any of these movements, you need to have access to your account, but your employer may deny you access.

Surprised? That’s why we made this article. With us, you’ll find out why your 401(k) might not be available after you leave a job..

How does the 401k work in the USA?

Before entering fully into the subject, let’s clarify a point: what is and how does the 401 (k) account in the United States work. The 401(k) is a retirement plan, specifically a type of investment account, which allows a person to start saving their money for when they retire from work.

The highlight of the 401 (k) is its tax benefits. At this point, it is important to note that there are two types of account: traditional 401(k) and Roth. For more information, be sure to visit the link that we leave you in this paragraph.

What happens to the 401k if I quit? (or if I am fired)

At first, you should know that it is illegal for a company to restrict access to your personal funds, which are the ones that are deposited into your 401(k) account. These funds not only include your contributions, but also all the earnings that amount of money has generated over time.

However, in practice, the entire balance of your 401(k) account may not be entirely yours.. Confused? Let’s see it. In a 401(k) both the employee and the employer make contributions. Now, your employment contract or, rather, your working life in that company may have been so short that you have not met the requirement of years established for those contributions made by the company to be your property.

However, if you reached the requested time point to be able to enjoy those business contributions, you will acquire an interest in them, which means that all the funds deposited in the 401 (k) are yours. In this case – and leaving aside some restrictions – the company will be obliged to release them.

Stephen Rischall, CFP, CRPC and Partner at Navalign Wealth Partners, declares in this regard that “If you have restrictions to access the 401 (k) funds that are already yours, you would be facing an illegality”. Additionally, it adds that former employees have the right to withdraw all contributions that belong to them, including those that have been made by the employer, if applicable.

Along the same lines, Mark T. Hebner, founder and president of Index Fund Advisors, explains that: “If there is a vesting schedule associated with the employer contributions and you leave the company before that date, you could legally be denied access to them”.

But is this the only reason your 401(k) might not be available after you leave a job? No. There is another reason. If the contributions to your 401(k) were made entirely by the company and there was no vesting schedule for them, this could result in the total loss of your account. As Jeremy E. Portnoff, MSFS, CFP, CIMA and founder of Portnoff Financial puts it: “If all the funds were made up of employer contributions and they don’t come through, there’s a chance you could lose it all.”

Tip: If you are considering leaving or changing jobs, it is important that you first find out how your 401(k) account works, if there is a timetable or date for awarding funds, and if you do not reach the date, calculate what proportion of the amount total of the account corresponds to you.

Important: The vesting program of a company, calendar or granting schedule, is what determines when the funds corresponding to the employer’s contributions become the property of the workers. Of course, this does not apply to contributions made by employees who will always be their property.

Watch out! Assets in your 401(k) account could be temporarily frozen

Yes, this is how you read it. Access to your funds, acquired, owned or not, may also be temporarily blocked. In what cases? If there is a dispute related to the plan, for example. In a scenario like this, assets could be frozen until the dispute is resolved.

According to Rischall, Restricted access to funds in a 401(k) account can also occur in the event the plan sponsor changes providers or there is a blocking period in which the funds cannot be mobilized for any other reason. Of course: this freezing must comply with certain legal requirements, such as notifying active participants at least 30 days in advance.

Finally, it is important that you know that employees who have recently been laid off could be subject to different rules of the game than these. These rules will govern, for example, things like resolving any financial issues related to the worker’s departure, such as an outstanding loan or advance.

What to do if my 401(k) account is blocked or frozen?

If access to your funds has been unexpectedly blocked, check your mail right away to see if there are any important messages you may have missed, such as an administrator change notification. If you’re sure you haven’t received a notice, call the provider and ask directly why you don’t have access to the funds and when the measure will be lifted.

In case there is no satisfactory answer or there are no external circumstances that justify the prohibition of access to the funds, try to clarify the situation with your former employer. If you’re unlucky, don’t hesitate to take your case to the Department of Labor or contact an attorney..

In short, why your 401(k) might not be available after you leave a job

So, as we saw in this article:

  • As a general rule, your 401(k) account contributions, and thus your earnings, will be available when you leave your current employer, either through resignation or layoff.
  • However, it is possible that the employer will deny you access to the contributions, but not all of them, but those that he has made. This would essentially happen if you quit your job before those funds are awarded to you as per the award schedule.
  • Access to your full 401(k) account balance may be blocked, at least temporarily, due to issues related to leaving work or a change in plan administrator.

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