What happens to your 401k if you get fired? 401k loan? Cashing out Your 401k after Termination, Rollover IRA, Distribution,Taxes Walmart Example

Employees who are terminated from their jobs have several options with the remaining balance in their 401k. You can cashout the entire amount, however you will be taxed heavily during the cashout and from the irs during tax season. You can choose to leave the money in the account until you find another job and then roller your 401k to that occupation. The best option is to request a Rollover Ira for the entire amount in your 401k. This will lower the tax penalties you will face. You can also withdraw funds from that account if needed.

Walmart Associates have the opportunity to make investments in a 401k account with Merrill Lynch that is matched up to 6%. What most don’t realize is that your 6% number is matched 100%

If Your 6 percent number is : $55
Walmart matches : $55
Every Check this amount goes in your 401k: $110
Every Month : $220
Every Year average: $2,640

You can save past 6 percent and get even more savings. You can change the amount you invest every paycheck depending on your life situation, which puts you in the driver seat and control of your 401k. If you are knowledgeable about investments you can even change the investments made in your 401k.

The 401k Loan:

Walmart Allows associates to borrow from their 401k with no tax penalties and low interest rates. The money you borrow and interest goes directly back into your 401k as you make payments.

If you lose your job:

If you lose your job, you don’t have much time to pay the 401k loan back, maybe 60 days. If you don’t pay it back in time it will be seen as a taxable distribution, You will owe income tax on the amount of your loan,and you will incur an additional 10% federal tax during tax season.

401k If You Lose Your Job:

(In the Video I had to pay $1,000 in taxes on $5,000 which is 20% tax.)

( Merrill Lynch worker helped me roll over $3400 to IRA at no tax)

1. You will be offered a distribution, but do the following.
2. Go to Benefits.ml.com
3. Check Your 401k balance
4. Call Merrill Lynch or Merrill Edge or the number on the paper provided to you for 401k retirement.
5. Tell them you want to rollover the entire amount to an “IRA”.
6. The reason why is because you wont have to pay any income taxes on the rollover ira.
7. If you were to take a distribution without moving to the IRA you might withhold 20% off the amount your taking from the 401k.
8. You can choose the company that you make the rollover IRA with….(read more)

LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA

Cashing out Your 401k after Termination or getting Fired: Understanding Your Options

Losing a job can be a stressful experience, leaving you unsure about your financial future. One important consideration during this time is what to do with your 401k plan. Your 401k is a retirement savings vehicle, and it is crucial to make informed decisions to ensure long-term financial security. In this article, we will explore the options available to you when it comes to cashing out your 401k after termination or being fired, including the 401k loan, rollover IRA, and use of a Walmart example to illustrate these options.

Before delving into the options, it’s essential to understand that your 401k account consists of pre-tax contributions from your salary, as well as potential employer matching contributions. Withdrawing money from this account before reaching retirement age can have significant financial implications. Therefore, it is crucial to explore alternative options before resorting to cashing out your 401k.

1. Cashing out your 401k: When you terminate your employment, you have the option to cash out your 401k entirely. However, this is generally considered the least favorable option for several reasons. Firstly, you will face taxes on the entire amount withdrawn, including penalties if you’re under 59 ½ years old. Moreover, you’ll lose out on potential future investment growth, depleting your retirement savings significantly.

2. 401k loan: Depending on your 401k plan, you may have the ability to take out a loan against your account balance. This can be a helpful option if you’re facing immediate financial hardships. It allows you to borrow against your 401k balance, usually up to 50% or $50,000, whichever is less. While this may seem appealing, keep in mind that you’ll need to repay the loan with interest, typically over a five-year period. If you fail to repay the loan on time, it will be considered a withdrawal, subject to taxes and penalties.

3. Rollover IRA: Perhaps one of the most popular options is to roll over your 401k balance into an Individual retirement account (IRA) once you’re no longer with your previous employer. This enables you to maintain the tax-advantaged status of your retirement savings while enjoying increased flexibility and control over your investment choices. Opening an IRA also allows you to consolidate previous retirement accounts from different employers, making it easier to manage your retirement savings in one place.

To illustrate these options, let’s consider a hypothetical scenario involving a terminated Walmart employee. If the employee chooses to cash out their 401k, they may face a 20% federal tax withholding, along with additional state taxes. Moreover, if the employee is under 59 ½ years old, they will face an early withdrawal penalty of 10%. Instead, if the employee opts for a 401k loan, they must repay the loan within five years; otherwise, taxes and penalties will apply. Finally, rolling over the 401k balance into an IRA would allow the employee to maintain the tax advantages while providing them with a wide range of investment options.

In conclusion, when faced with termination or being fired, it’s crucial to carefully consider your options regarding your 401k. Rather than cashing out, exploring alternatives such as a 401k loan or rolling over the balance into an IRA can help preserve your retirement savings and provide long-term financial security. The Walmart example indicates the potential consequences of cashing out and highlights the benefits of exploring other options. Remember, consulting with a financial advisor can help you navigate through these decisions and make informed choices that align with your financial goals.