Laid Off? Don’t Give Up On Your Retirement Plan

We all know that the world’s economy is far away from showing signs of recovery. Sales are low, and unemployment keeps rising, even from big corporations.

If you are one of the unlucky individuals who has lost his job to this recession, and are left with only your 401k plan as your savings, then you should aim at keeping this savings amount. Here’s how:

If you were employed by a big corporation who used to sponsor your retirement plan and have been laid off, the company who has terminated your employment might allow you to keep your 401k plan. Your former employer would have hired a plan administrator, who may retain your saved funds, such that your total savings may continue growing. Make sure you check with the administrator for the plan restrictions.

You also have another option, which is to roll over your saved funds, into a new IRA or a Roth IRA. Furthermore your new employer may be able to rollover your saved funds into a new 401k plan account. Obviously your new employer would need to sponsor your new 401k plan for this option.

Now in the case that your 401k plan had less than $5000 balance, the plan administrator would be legally required to issue you with a check that covers the account balance. When you receive this check, you would have up to 60 days, to transfer the money into a new 401k plan, or else a personal IRA, thus avoiding tax consequences.

All the above are worthwhile options that you can easily adopt. Whatever happens, closing your 401k plan should be the last option that comes to mind. Remember that the funds that you saved in the 401k plan, including the match that your employer provided you are all tax-free funds.

If you still want to cash your 401k plan, keep in mind that early withdrawal attracts heavy penalties, and your income tax rate may increase up to around 25%. The best option is always to keep the funds in the account, and when you are in a better financial position, you may continue where you left off, instead of having to start saving for your retirement from scratch.

Reference: http://howtobuystockonline.com/how-to-manage-your-retirement-plan-after-a-layoff