What happens with the unvested portion of your 401(k) when you leave a job for any reason depends on your employer's retirement plan document. Your boss must adhere to the terms of the plan by law. Most do not allow the employer to distribute any unvested funds. Request a copy of the plan document if you don't have an updated one, and read the section about vesting carefully. Here's more information on what you can do with your 401(k) after you leave an employer: http://moneygirl.quickanddirtytips.com/job-changes-401k.aspx
Getting Fired? Ask One Question to Get Free Money
Getting fired is never easy. There are a whole bunch of emotions that you'll experience: from anger to sadness to very serious concern for your future.
All valid emotions. None of them will do you any good.
But a few weeks ago I discovered a question that can actually make you some money if you ever get fired. It has fast become my number one "if you get fired" tip.
If you get tapped on the shoulder and asked to step into HR's office, don't forget to ask them this one, very important question:
Will you give me the unvested portion of my 401(k) account?
What does it mean?
If you've been a responsible employee, you've been contributing to your 401k account — at least up to the company match. But most companies have a vesting schedule — which means that money they "give" you isn't "yours" until you've worked there for X amount of time.
So after one year, you only "get" 10% of the total they've matched. After three years, maybe it's around 20%, and so on. The longer you stay, the more of it is yours.
But technically that money isn't yours until it's vested.
But a lot of employers are willing to give you the unvested portion of your 401(k) account if/when you're being let go.
Especially if it's not performance related and they just need to downsize. It's not that big of a deal to them and in an effort to make these kinds of moves as painless as possible, there is a good shot you'll get this money.
The worst thing that can happen? They say no.
Has anyone out there had success with this?
Staff Writer
Carlos Portocarrero
Check out more of Carlos at The Writer's Coin, where he strives to become the Michael Lewis of personal finance.
Best of Wise Bread
Yeah, I asked my employers to give me the unvested portion of my 401k, and they ignored me/refused. Especially obnoxious because I was laid off 16 days before the final portion was supposed to vest.
The company retains a right to repurchase (typically at the exercise price) the unvested portion of the shares when the employee leaves the company.
Just to be clear: what this means is they don't owe you this money. What you're asking for is kind of a good-faith type thing. As in, "Hey, do me a solid and give me a break. You're firing me and if you want to do this the "right" way, how about helping me out with the unvested part of the 401k?
I'd rather that than "resume help"
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This is not really something the plan can choose to do or not do other than by amending their plan document. As Money Girl states above, the plan has to be administered per the plan document and they must stick to the vesting schedule. Not doing so could result in the plan being disqualified resulting in all employees' balances being subject to taxation, the company being fined, and basically, no 401(k) plan for the employees still at the company. I have had some plans indicate that they are laying off someone but want to go ahead and "vest" the employees. They have good intentions but vesting those employees early would mean they need to vest all employees early. To do otherwise may be found to be discriminatory by the DOL.
I can't remember working for a company that didn't vest the match immediately! But the SPD would rule regardless.
I want to point out that "being fired" equates to "terminated with cause".
Being laid off or downsized is much different. Employers are much more disposed to being generous if they are the ones at fault, so to speak.
BTW, in my state, terminated with cause means no unemployment money. Laid off means you can claim unemployment. Unless you weren't a full time worker to begin with. But that's another story.
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