A 401(k) plan is tied to an employer. The benefit of that arrangement is that it allows you to receive matching contributions. The downside is that few people stay with the same employer throughout their working life. There is a very good chance that at some point, you’ll want to change companies. So what happens to your 401(k)?
If the fund contains less than $1,000, your old employer will probably just send you a check. If you’re not yet aged 59.5, that check will generate taxes and a 10 percent early withdrawal penalty. You won’t see much of those few hundred dollars.
For an amount between $1,000 and $5,000, your old employer will have a choice. They can either leave your money in the plan or they can push it out. If they choose to push it out, they have to send you a notification letter to which you must reply within 30 days. If you don’t respond, they must put the funds in an IRA for you.
For amounts of more than $5,000, the choice is likely to be yours. You can choose to leave the money in your old employer’s 401(k), or roll it over to your new employer’s 401(k).