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I currently have a 401k through my company. I'm saving nearly the maximum $17,500. While the company matches the first %6.

If I leave in a couple of years I will be %50 vested and my balance will probably be around $40k.

My ideal situation after leaving my job is to make a living working temporary or contract positions. This way I have a lot more time off.

My question is, what would happen with the 401k balance after leaving my job? What if I never contribute anything towards it? Based on my research so far, it seems like the best idea would be to put it into some kind of IRA. If I do that, what does the money in the IRA do as it sits there 30+ years until I reach retirement age?

Does the money that sits around in the IRA gain interest? How much and how in the world do you figure it out?

Thanks in advance for any information.

Chris W. Rea
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user12584
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2 Answers2

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IRA and 401k are investment accounts. 401k accounts may be limited in what you're allowed to invest in more than the IRA, but still - these are investment accounts. The money you deposit in them - is invested, per your instructions.

What happens to it is up to you.

When you leave your job, if you have some unvested match balance in the 401k, it may be refunded back to your employer, but your own contributions are always vested.

littleadv
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If you leave your job with money that you contributed to the 401K, the company will have a policy about whether you can leave the money in the 401K or whether you must take it with you. I have normally seen that if it is a small amount, then it must be taken and if it is over a certain amount (maybe $10K) then you have the option of leaving it in the account or taking it out.

If you take it out, then you should contact a brokerage first and get instructions from them for how to have it transferred into a rollover account to avoid having to pay tax. If the company makes the check out to you or transfers money into a non-retirement account, then they will very easily cause a taxable event and they will likely withhold tax from the payment.

If you leave the money in the 401K after you leave, you will generally have fewer investment choices, higher fees, and you may have higher risks. Occasionally companies in hard times fraudulently raid their 401K accounts and when this happens it can be very difficult to get it back. (For examples see the Dept Of Labor page at http://www.dol.gov/ebsa/newsroom/criminal/main.html and look for 401k or retirement in titles).

As far as having the money invested for several years, that time can be your friend if you get a reasonable rate of return. Over 30 years your money should be able to double multiple times. (At 8% return it will take less than 10 years to double the money. [see http://buyupside.com/calculators/doublemoneyfeb08.htm])

iwan2know
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