If you are terminated from a company and opt to cash out 401k do you get the whole or just what you put in?

Question

My job was terminated and they gave me the opt to cash out my 401k I have a certain amount in there with the contributions from the company and then I have an amount without the contributions from the company. If I cash it out which amount do I receive so I will know what the penalties will be?

Answer 1

Are you fully vested?  Check your vesting percentages... most companies require 5 years of service before you can take the money they put in.  So you'll probably only get the money you actually put in (plus losses/gains) if you're under 3-5 years working there.

Also, if you cashout and you're under the age of 60 you're going to pay MEGA penalties to the government for early withdrawal, taxes you would've paid originally, yadda yadda... it's best to just roll it over to a regular IRA.

Answer 2

If you are vested, have been employed for 5 years with the company, you get the company match back.  If you are not vested you only get back your contribution.  Also, it is possible the taxes may be taken out first for early retirement account withdrawal and income tax.  If the taxes are not taken and you want to roll it over into another retirement account, like an IRA, make sure to deposit it in you retirement account.  Also, it is best if the check is made out to a bank not just your name, to avoid tax consequences.

Answer 3

It depends how long you worked at the company.  Usually you have to work there for several years before you become "vested", meaning you get to keep THEIR contributions to your account.  You are always fully vested for YOUR contributions, but you have to stay with the company a set number of years before you get vested for their amount.  It should be clearly stated in the paperwork they give you - if not just ask, they have to tell you.

However, cashing out would be a really stupid idea, and you don't have to do it.  By cashing out, you face stiff penalties and fees that will eat up a lot of the money (like 40% of it) that you worked so hard to save.  This money is supposed to be for your retirement, so the government does everything they can to discourage you from accessing it before then.

The far better option is to simply have it "roll over" to a 401k account at your new job, or to an IRA at a bank or financial institution.  Or you can keep it in this current 401k account - the money is always yours and the company can never touch it, and they don't need to close the account.  It's just easier for you to keep track of if you roll it over.

Cashing out would be financially robbing yourself.  Don't do it.

Answer 4

The amount you can receive is dependent upon how "vested" you were.  It varies company to company; example, I have to be with my company 10 years to be 100% vested in the account.  Right now, I'm 25% vested, which means I would get ALL of my contributions, plus 25% of what the company contributed.

I strongly advise against a full cash-out.  10% penalty (if under age 59 1/2), plus income taxes for federal and state withheld at highest tax bracket rate will eat about half of the money (though, you may get some of it back at tax filing time if your actual tax bracket is a lower one).