Can You Lose the Rights to Your 401(k)?

Laura Gariepy  Wed, April 26, 2023

Your employer can’t seize your 401(k) contributions or the investment earnings from those contributions when you change jobs voluntarily or when you get fired or laid off. However, your retirement plan is subject to rules imposed by the company and the IRS. Those rules could limit your rights to the funds in your account.

Here are three factors that can impact what happens to your 401(k) when you leave an organization:

Account Balance

The amount of money in your 401(k) plays a significant role in determining what happens to your account when your employment gets terminated.

Here’s what the company can do at various balance levels:

Under $1,000: Cut you a check for the total amount

$1,000-$5,000: Move the funds to an employer-selected individual retirement account

$5,000+: Leave the money where it is or ask your permission to move it

Legal Update Ahead: The government recently passed the SECURE 2.0 Act, which makes several changes to how retirement accounts get handled. One such change is that the $5,000 threshold mentioned above will increase to $7,000 for distributions processed after Dec. 31, 2023.

Vesting Schedule

You own every penny of the money you contribute to your 401(k). However, companies can set vesting schedules to determine when you can keep the employer’s contributions to your account should you leave the firm.

Many companies use a tiered vesting schedule, where you earn the right to keep a percentage of the employer match based on your years of service. For example, you may earn 20% each year during years two through six. In that case, you’d need to remain employed for six years to be fully vested, which means you’re eligible to receive all of the company’s contributions upon termination.

Outstanding Loans

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https://news.yahoo.com/finance/news/lose-rights-401-k-123730039.html