Approximately 6 million people have lost their jobs since the recession started in December 2007. If you’re among them, you may face some questions regarding your 401k. If you tap your 401k account before age 59 ½, you’re subject to both income taxes and a 10 percent early withdrawal penalty. However, if you lose our job and are 55 or older, most plans allow you to access your funds without an early withdrawal penalty. You’ll still owe taxes and forfeit what could be decades more of tax deferred 401k growth.
401k Transfer Options
- Option 1 — Leave your assets in your old company. This limits your investment choices. If you have more than $1,000 but less than $5,000, your ex-employer can transfer your assets into a Safe Harbor IRA with an investment company of their choosing.
- Option 2 — Converting 401k into an IRA affords you a wider range of investment choices and greater control of your money. As of January 1, 2008. You can roll your 401k directly to a Roth IRA. Once you pay your conversion taxes, all withdrawals are tax-free provided you hold your Roth for at least five years and are at least 59 ½ years of age.
- Option 3 — This involves changing 401 plans. If you land another job right away, you may decide to roll over your 401k into your new employer’s plan. You may be limited in terms of 401k mutual funds investment choices, but you can borrow from your account as long as your work for the employer.
Transferring 401k Legal Help
If you have been the victim of a recent layoff and are having difficulty obtaining your 401k funds, you should contact an experienced 401k transfer attorney who specializes in this area of law. Employers have a time period to return funds or be subject to heavy fines.