I quit my job. I now have a 401K and don’t know what to do with it.

[runirogvason]

Hello, I (29F) recently quit my job last month due to personal health reasons. My former job used to double match whatever I put in my 401(k). For example, if I put $100 in they would put $200. It was great. This is my 1st 401(k) account and it has been active for about four years now with Fidelity.

Well, after I left my job, I guess Fidelity was notified and they sent me an email telling me that I have options with this account. I’m not sure if it’s still growing or not. I really don’t know anything about investing. I just knew when I was hired at my corporate job to enroll in a 401(k) for my retirement one day. In the email, the options were 1) withdrawing the money or 2) rolling over the money into an IRA (I don’t even know the difference between that and a 401K). What’s the point of me rolling over the money if I don’t have another job to continue to put money in there?

Anyway, I have thousands of dollars sitting in that account and I don’t know what to do exactly. I really want to just withdraw all the money out and pay the federal and state taxes on it but everywhere I research, I’m reading that that’s an awful idea? The only thing that’s annoying me is this 10% penalty fee. Fidelity gave me an estimate of how much my withdraw would be after taxes are deducted and it’s still double than what I contributed in the past 4 years, so it’s not really a loss.

I just bought a house in 2022 and have 2 kids. My husband is the main provider of the house. But if I could have access to that money since I’m not working, it could help us a lot.

 

[alilyn29]

@runirogvason Either put it in a rollover IRA or leave it there for now. What is it invested in?

Whatever you do, do NOT withdraw the money to use now. Your future self will thank you.

 

[richboat]

@alilyn29 I had fidelity do a roll over IRA for me as well.

 

[hebrewcalendar12]

@richboat Same here. Didn’t realize my overpayments were already taxed so I got o take out a nice amount tax free.

 

[runirogvason]

@alilyn29 I’m so sorry. What do you mean by “what is it invested in”? I know I saw the name VanGuard on there if that’s what you mean.

 

[annabel4]

@runirogvason 401k is just the account type. You need to use the account to invest money. That is what helps the balance grow.

The investment choices are usually index funds, stocks, bonds mutual funds. A common choice for 401ks are target date funds.

Make sure when you get into the account or it’s transferred that you invest the money

 

[blackrose14]

@runirogvason My understanding is the money can be in your account but not invested. You have to tell the account what you want it invested in. Usually the account has limited options to pick from. If it’s invested for you it’s usually in company stock.

 

[janitrol]

@blackrose14 The money will always be invested, you just want to ensure it is in mutual fund investments and not cash equivalent investments (stable value) as they offer very little return. It is very very very uncommon for 401k funds to be automatically invested in company stock as that would breach fiduciary responsibilities for a default investment.

 

[abarairukia]

@janitrol Not true. OP would have had to choose how to invest her contributions initially. If she didn’t, it absolutely could be sitting in the account as cash

 

[janitrol]

@abarairukia It would be in a cash equivalent in a 401k such as a stable value or money market fund. Cash is not an option in 401k plans. Source: I do retirement plan recordkeeping for a living.

 

[kayreborn]

@abarairukia Most accounts don’t have a “cash” option. Is usually a cash equivalent money market fund.

Currently at 5% yeld.

 

[janitrol]

@kayreborn Thank you! Also, what’s much more common in the industry now is for the QDIA to be a target date fund to avoid the classic issue of someone not choosing an investment and being in a stable value for 20 years unknowingly.

 

[kayreborn]

@janitrol when my job opened my fidelity 401k back in 2015 that was the default option. Always important to check.

 

[immerfrei]

@abarairukia The default option for most plans is a target date fund based on your age at the time of enrollment.

 

[golgothaghostwriter]

@immerfrei A lot have the stable fund (HYSA/money market equivalent) as the default.

 

[immerfrei]

@golgothaghostwriter I’m sure a lot do but according to research 92% go into a target date fund.

https://www.fool.com/investing/2021/12/10/are-401k-contributions-automatically-invested-well/

 

[resjudicata]

@abarairukia Um no. It's an investment account. Funds are automatically invested (unlike in an IRA.) It's company sponsored. It is a non liquid asset though it can be cashed out once vested for hefty penalties and taxes paid if done early.

 

[ggerald22]

@runirogvason Yeah, ok, good question.

There are lots of different types of accounts.

A brokerage account is just an account that holds your financial assets like stocks and bonds.

401(k) and IRA, and Roth IRA are just common types of accounts that have serious tax advantages.

Within a 401(k) or IRA or Roth IRA, you will own specific funds or stocks or bonds. He was asking what funds/stocks/bonds you own within your 401(k).

BTW - good on you for being thoughtful about this at age 26. No better time to learn. And no dumb questions.