401(k) Balance When an Employee Resigns?

The recipient of an MBA in finance from Pepperdine University, Lisa Detanna maintains executive responsibilities as senior vice president of investments with Raymond James. In this role, Lisa Detanna works with high-net-worth individuals, providing them with a comprehensive range of financial planning services including risk management, tax preparation, as well as retirement planning.

A 401(k) is a type of retirement plan offered by an employer. It enables an employee to set aside a portion of their pre-tax pay towards retirement. These funds are spread over a variety of assets, including bonds, mutual funds, and equities. Because 401(k) contributions are not considered income, they can help employees maintain lower tax brackets.

If an employee with a 401(k) account resigns, their employer can cut them a check for the amount in their account if this is less than $1,000. Ideally the employee should immediately transfer the funds to an individual retirement account (IRA) within 60 days, otherwise they will be subject to taxes.

If an employee's balance is between $1,000 and $5,000, their employer can transfer the funds to an IRA of their choosing. For an employee with a balance over $5,000, the employer may not withdraw money from their 401(k) unless the employee gives permission for this.