Direct rollover or cash out?

Direct, almost always. A direct rollover has no withholding and no 60-day clock; an indirect distribution withholds 20% and requires you to replace that 20% from your own funds within 60 days to avoid tax on it. A cash-out also creates a taxable distribution and, if you are under 59.5, a 10% penalty on the amount not rolled. See the direct-rollover entry.

What happens to my 401(k) loan when I leave?

The plan either requires repayment or offsets the balance. An offset counts as a distribution: taxable, plus a 10% penalty under 59.5, unless you roll it within the plan's 60-day window measured from the offset date. Ask for that date in writing the day you give notice. The loan-offset entry covers the reporting.

Can I leave the money in the old plan?

Often yes, above the plan's cash-out threshold. Leaving it means old fees, a limited fund menu, and slower service, but it avoids a 60-day deadline. Decide in writing before your last day, because forced cash-outs below the threshold start the clock automatically. Check the balance and vesting first in the vesting calculator.

401(k) Rollover After Leaving a US Job

Your 401(k) is yours the moment you leave, but four traps cost people money: vesting forfeiture, forced cash-out on small balances, loan offsets, and 60-day rollover windows. Work the checklist in the last month of employment.

Vesting: The First Check

Employer match vesting is graded (typically 3-6 years). Leaving at year 2 forfeits unvested match dollars. Know your vesting date before resignation day — the exit checklist covers the full benefits audit.

Rollover Paths

Direct rollover (trustee-to-trustee): no tax event, no 60-day clock. The clean default: move to a personal IRA (Fidelity/Schwab/Vanguard, low fees, full control).
Indirect rollover: check paid to you, withheld 20% for taxes, must redeposit within 60 days, else the check becomes taxable + early penalty under 59.5. Avoid this path.
Leave it in the old plan: legal and fine if fees are low and your employer's plan investment options are good. Many plans force cash-out under $5K — expect it for small balances.

The Roth & Loan Traps

Roth conversions from 401(k) to Roth IRA are taxable on the converted gains; converting when your income is low (between jobs, no W-2) is the timing play. 401(k) loans: separation often triggers loan offset — repay the balance or the unpaid amount becomes a taxable distribution. Check the plan's separation terms before your last day.

New Employer's Plan

Most new plans accept rollover in, most do not accept loans. Roll after joining, not during: a gap in access is a gap in control. Update beneficiaries at every account move — beneficiary designations override wills.

Put the rule into action

Write the letter with the free Final Paycheck Demand Letter generator. The state pages carry the local payout and notice windows, and the application tracker keeps the follow-up date in writing.

Put the rule into action

The clock and the two routes

Two routes move plan money after a separation, and they differ on withholding, timing and risk.

Direct rollover: trustee to trustee, old plan to a new plan or an IRA. No cash touches your hands, no mandatory withholding, no 60-day clock, and it reports as a non-taxable transfer on the 1099-R.
Indirect rollover: the plan pays you, withholding 20%, and you have 60 days from the distribution date to deposit the full amount, including the withheld 20% from your own money, to avoid tax on the shortfall.

Ask for the direct route in writing before your last day. Forced cash-outs below the plan's threshold are reported on a 1099-R with 20% withholding if they are not rolled, and the 60-day clock starts whether or not you remembered the balance existed. The direct-rollover entry covers the form codes to check.

Loan offsets change the math

Leaving with an open 401(k) loan is the most common surprise. Many plans require repayment at separation or offset the unpaid balance against your account. An offset is treated as a distribution: the plan reports it, the amount you do not roll is taxed, and it carries a 10% penalty if you are under 59.5. Most plans allow a 60-day window to roll the offset into an IRA, measured from the offset date, not from your last day.

Ask for the offset date in writing and calendar it. Two numbers decide the outcome: the offset amount and the date the 60-day window ends. The loan-offset entry explains the reporting; the vesting calculator prints your vested balance so you know what is actually movable.

Vesting and what is yours to move

Your own contributions are always 100% vested. Employer match follows the plan schedule: graded, typically 20% per year starting at year two, or cliff, 0% until the cliff date and 100% after it, with federal minimum standards keeping a cliff inside five years. Unvested employer money returns to the plan when you leave.

Get the vesting date and the service-credit rule in writing before your last day. Transfers, clock changes and acquisitions reset service credit more often than the plan text suggests, and a cliff date two weeks after your last working day forfeits the whole employer match. See the vesting audit and the cliff-vesting entry.

Scripts and wording

"Please process my 401(k) balance as a direct rollover to [institution], account [number]. Please confirm in writing: the vested balance, the loan offset amount and offset date if any, the distribution date, and the 1099-R code. I do not want a cash distribution."

Send it before the last day and keep the confirmation. A cash distribution that looks harmless turns into a taxable event and a withheld 20% you have to replace out of pocket inside 60 days.

Rollover routes compared

Route	Tax event	60-day clock	Watch
Direct rollover	None; trustee to trustee	No clock	The clean default
Indirect rollover	20% withheld, must re-deposit in full	60 days	Missing the withheld amount creates tax
Leave in the old plan	None	No clock	Watch fees and account access
Cash out	Income, plus 10% penalty under 59.5	Not applicable	Usually the worst route

For the current text behind these numbers, start with the California job exit rules page and the New York job exit rules page, along with the Severance Package Negotiation Letter generator, the 401(k) Vesting Schedule definition, and the equity tax trails guide hub. Those sources state the rule in full; this page only points at them.

Frequently Asked Questions

Direct rollover or cash out?: Direct, almost always. A direct rollover has no withholding and no 60-day clock; an indirect distribution withholds 20% and requires you to replace that 20% from your own funds within 60 days to avoid tax on it. A cash-out also creates a taxable distribution and, if you are under 59.5, a 10% penalty on the amount not rolled. See the direct-rollover entry.
What happens to my 401(k) loan when I leave?: The plan either requires repayment or offsets the balance. An offset counts as a distribution: taxable, plus a 10% penalty under 59.5, unless you roll it within the plan's 60-day window measured from the offset date. Ask for that date in writing the day you give notice. The loan-offset entry covers the reporting.
Do I lose employer match when I leave?: You lose only what is unvested. Graded schedules vest in steps, cliff schedules vest on one date, and leaving before the cliff forfeits the full employer amount. Confirm the vesting date and the service-credit rule in writing: transfers and acquisitions reset credit more often than the plan document suggests. The vesting calculator prints the dates from your hire date and schedule.
Can I leave the money in the old plan?: Often yes, above the plan's cash-out threshold. Leaving it means old fees, a limited fund menu, and slower service, but it avoids a 60-day deadline. Decide in writing before your last day, because forced cash-outs below the threshold start the clock automatically. Check the balance and vesting first in the vesting calculator.

The 60-day rollover clock, the 20% withholding on a forced cash-out, and the offset date on an open loan are plan and IRS rules, not state rules. Confirm the payout method in writing before your last day, and confirm any state wage question that rides with the separation — final pay, PTO payout, and the pay window — with the state agency named on the state rule pages. Run the vested and unvested split in the vesting calculator, and use the direct rollover record so no cash touches your hands and the 1099-R line stays clean.