Why Might Your 401(k) Be Unavailable After You Leave a Job?

There are several situations in which this could happen

401(k) Availability

Once your work with an employer ends, options for the 401(k) plan you hold with the company include cashing it out, rolling it over to your new employer's 401(k), or transferring it into an individual retirement account (IRA). But be forewarned: The choice you make may or may not involve paying taxes to Uncle Sam.

Those moves, of course, all require access to the funds in your 401(k) account. However, what happens if your employer denies that access when your employment finishes? And why might that happen?

Key Takeaways

  • As a rule, your own contributions to your 401(k) and any earnings generated them are readily available when you leave your employer.
  • Access to your 401(k)'s employer contributions may be denied because your tenure was too short for those funds to vest to you.
  • Vesting periods are often on the order of several years.
  • Access to the entire balance may be blocked, at least temporarily, due to issues related to your departure or a change of record keepers for the plan.
  • When you leave a firm you can roll your 401(k) into your new employer's plan or an IRA without penalty.

Vesting May Limit Access to Some 401(k) Funds

In principle, it's illegal for a company to restrict access to your personal 401(k) funds and the earnings they have made. However, in practice, the balance in the account may not all be yours, because some money may have been contributed by your employer via employer matching and you may not have worked long enough in the job for those company contributions to have vested to you.

Once you have reached the point of becoming fully vested, often within a few years, the funds are all yours, and barring other issues, the company is obliged to release them. If you are restricted from accessing your vested 401(k) funds, that is indeed illegal. At all times you have full rights to withdraw all of your contributions made to the plan in addition to fully vested employer matching contributions, if applicable.

Nevertheless, if there was a vesting schedule associated with matching [employer] contributions, and you left before the date those funds fully vested, you can legally be denied access to them.

There is another reason you may not be entitled to any of the funds: If the contributions to your 401(k) were made entirely by your company and there was no vesting schedule for them. This could result in the loss of the account. There is a possibility that if the funds were all employer contributions and are not vested, then you basically forfeit the funds. So if you are considering a job move, it's important to know your 401(k) plan's vesting schedule and understand what proportion of the contributions (if any) are fully vested.

A company's vesting schedule determines when employees own their employer's contributions to their 401(k) accounts; workers are always fully vested in their own contributions.

Assets May Also Be Temporarily Frozen

Access to your funds, vested or not, may also be blocked if litigation related to the plan is in process. In such instances, assets may be temporarily frozen. Similarly, short-term restricted access to your funds may happen in the event the plan sponsor is changing record keepers or there is a blackout period in which funds cannot be changed or accessed in any way. You should know about this in advance as this is legal, and notices must be provided to active participants at least 30 days prior to the blackout start date.

Recently terminated employees may also be subject to different rules regarding access to their plans. These rules are governed by things such as resolving any lingering financial issues around a worker's departure—an outstanding loan, for example. If you've taken out a 401(k) loan and leave your job, you'll have a specified time period in which to pay it back.

Finally, a lock may occur due to suspected fraudulent activity on the account. While fraud alerts are meant to protect account holders, sometimes they may be unaware of the alert and will need to call customer service to release the hold.

What to Do

If access to your funds is unexpectedly blocked, it's worth checking any correspondence from the company for explanatory messages, such as a notification of a change in record keepers. If you find no such notices, Hebner advises calling the provider and asking why you don't have access to your money and when you can expect that condition to change.

If, for instance, external circumstances force you to wait for a short period before you can access your funds, you should have that clarified and, if possible, have the terms put in writing. If no external circumstances exist and your previous employer still denies you access without proper explanation, you should address your case to the Department of Labor or an attorney.

Can a Company Take Away Your 401(k) After You Quit?

No. 401(k) contributions and any gains on those contributions are your money and you can take them with you when you leave a company (for any reason) via a rollover. Unvested employer contributions (e.g. matching), however, can be taken back by the employer.

Can I Keep My Former Employer's 401(k) Plan After I Leave?

If you've made more than $5,000 to your old employer's 401(k) plan, you can leave your money invested there even after you leave. In cases where that plan has very low fees or unique investment options, it may be a good idea to keep those funds there. If you have less than $5,000 contributed, however, the old employer can only hold that account for 60 days after you leave. Then, it has to be rolled over into a new qualified retirement account.

How Do I Roll Over a 401(k) From a Previous Employer?

Rolling over a 401(k) plan from an old employer is easy. Contact the plan sponsor of both the new and old company and they can often manage the rollover directly. If you want to roll it over to an IRA, you can also contact the IRA sponsor (e.g., your broker). In some cases, the old plan sponsor will send you a check in the amount of the 401(k), which you must submit to your new plan within 60 days in order to maintain the tax benefits.

Article Sources
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  1. U.S. Department of Labor. "FAQs About Retirement Plans and ERISA," Page 4.

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