Every day, you turn on the evening newscast and hear more bad news about the economy.  Wall Street plunged again.  Economic indicators are the worst since WWII.  And unemployment continues to rise, along with more and more layoffs from major corporations. 

 

If you are one of the unfortunate workers who has been given walking papers and are now left with just a pink slip and your 401(k) account, here is what you can do to maintain your retirement savings after a layoff.

 

Retain Your 401(k) with your Employer

 

Most corporations that sponsor a 401(k) plan for their employees have an exit procedure for former employees.  When you terminate your employment, either by your choice or the company’s layoff, you may be able to keep your 401(k) account right where it is.  The plan administrator hired by your former employer can retain the funds in their investment options and your 401(k) account can continue to grow. 

 

However, check with your plan administrator on any restrictions.  Some administrators allow a 401(k) to be administered indefinitely, or you may have up to a year to either have your 401(k) funds cut back to you or rolled over into an individual IRA account.

 

Rollover Your 401(k)

 

Your 401(k) plan was sponsored by your former employer.  After your employment terminates, you have the option to roll your vested funds over into a personal IRA or Roth IRA account.  If you find other employment with a company that also sponsors a 401(k) plan, you may be able to roll your old 401(k) funds over into your new 401(k) account.

 

A 401(k) rollover can be performed without negative tax consequences or penalties.  However, the restriction is that the funds must be rolled over into another contribution retirement account.  A rollover transaction can be easily performed by a qualified retirement management company such as www.iamllc.biz.  Or you can talk to a retirement specialist at www.kenhimmler.com  to get advice on what to do with your funds.

 

A Required Check to You

 

If your company-sponsored 401(k) account has less than $5,000, then the plan administrator is required by law to issue a check for the balance of your account.  In order to avoid the tax consequences of accepting the money, you have up to 60 days to put the funds into a personal IRA account or into a new 401(k) account if you find other employment within those 60 days.

 

Keep Saving For Retirement

 

Whatever you do, don’t cash out your 401(k).  Your 401(k) funds are a benefit to you from the federal government.  The funds you put into your account, as well as any company matched funds, are all tax-free.  However, if you request to cash out your 401(k) plan funds, you will be faced with stiff penalties for early withdrawal, as well as your current income tax rate up to 20% to 30%. 

 

If at all possible, leave your funds in a 401(k) account or individual IRA.  When you are financially able to continue putting contributions into the account, do so as soon as possible.  Your retirement will continue to earn compound interest, but the additional funds you can contribute will help your retirement account grow by the leaps and bounds you need to enjoy a happy and financially secure retirement.

 

 

Authored by Kenneth Himmler, Sr.