There's a reason companies commonly match worker contributions to 401(k) plans. Offering workers free cash for retirement is a great way to get them to stay on board.
If you've been saving for retirement in your employer's 401(k), you may have been granted matching contributions along the way. But if you're now gearing up to leave your job, you should know that you may or may not get to take those matching dollars with you.
It's a matter of your company's policy
Let's be clear about one thing. Any funds that go into your 401(k) plan out of your own earnings are yours to keep, no matter what.
If you switch jobs and have contributed $15,000 to your 401(k) plan out of your paychecks to date, you're guaranteed to be able to walk away with that $15,000 in retirement funds. It's the matching dollars your employer has been handing over that may be in question.
Some companies impose a vesting schedule for 401(k) matches. If yours has one, you may not get to keep your match, or a portion of it, depending on the terms of that vesting agreement.
Let's say it takes five years of employment to fully vest in your 401(k) match, and you vest at a rate of 20% a year. Let's also say you also got a $3,000 match in your 401(k) and have been with your employer for a year. That means you may only be entitled to 20% of that $3,000, or $600.
Now some vesting schedules work a little differently where you have to remain an active employee through the end of your vesting period or you get nothing. So in the above example, you'd forgo your entire match for walking away from your job after a year.
Meanwhile, there are plenty of employers that don't impose a vesting schedule at all for 401(k) matches. So if yours falls into that category, you can keep whatever matching contributions you've received when you leave your job.
What to do with your 401(k) when you leave your job
You may have the option to keep your old 401(k) where it is once you leave your job, but it's generally best to move that money into a new plan so you don't forget about it. In fact, there are more than 29 million unclaimed 401(k) plans in existence today, says Capitalize, and it would be a shame for yours to fall into that bucket.
If you have a new job lined up with its own 401(k), you could opt to roll your old 401(k) into that plan. Otherwise, you can open an IRA and move your 401(k) there.
Employer matches are a nice perk to have in a 401(k) plan. But it's important to review the terms of your company's vesting schedule before making plans to leave your job.
In some cases, it may be that sticking around for a few extra months spells the difference between getting to keep your matching dollars versus giving them up entirely. And given how hard it is to build cash savings, it would really be a shame to give up any amount of free money if you don't have to.
