Cashing Out Your 401(k) If You Leave or Are Fired

How to Cash Out a 401k When Terminated

By Christy Bieber – Updated Jan 1, 2026 at 12:08 AM EST

Key Points

Many 401(k) plans let you keep your money invested after you leave your job, but you can't make additional contributions.
Vesting terms dictate ownership of employer-matched 401(k) funds; leaving before you're fully vested could mean you forfeit some funds your employer contributed.
Rolling over a 401(k) to a new employer's plan or into an IRA within 60 days avoids taxes and penalties.

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An infographic explaining three options for cashing out a 401k account when terminated from a job. — Image source: The Motley Fool.

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Cashing out a 401K when terminated: FAQ

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About the Author

Christy Bieber is a contributing Motley Fool retirement and Social Security expert covering retirement planning, 401(k)s, IRAs, and other personal finance topics. Christy has written about finance since 2008 and previously taught business courses at Bryant & Stratton College. She holds a law degree from UCLA and a bachelor’s degree in English, media, and communication with a certificate in business management from the University of Rochester. In law school, she earned three CALI Awards for Excellence for the highest scores in civil procedure and contract law exams.

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Cashing out your 401(k) if you're fired

Quitting a job with another one lined up is one thing; you probably have your retirement planned or a new job lined up. Unfortunately, being fired may mean you're left without a clear financial plan.

Even if you are fired, you want to do everything possible to avoid taking the cash out of your 401(k) and getting hit with tax penalties. Instead, you have other options, including the following:

Keep your money in the 401(k). Many employers allow former employees to keep their money in their plans. However, if you have less than $1,000 in your account, some employers will cut you a check for your balance. If your balance is less than $7,000 (previously $5,000), your old employer may also move your money into an IRA with ultra-conservative investments.

Roll your money into an IRA. For many former employees, this is likely the best option. It preserves your nest egg, gives you more flexibility in directing any future savings, and allows you to avoid taxes and penalties. It's usually best to do a 401(k) rollover by having your former employer transfer the money directly to your IRA provider, which is known as a direct rollover. You can also do an indirect rollover, where you cash out your 401(k) and deposit the money into an IRA within 60 days. But you'll only have 60 days to deposit your funds into a new retirement account. Otherwise, the IRS will consider it a 401(k) distribution.

Take the money and run. Most people younger than 59 1/2 who cash out their 401(k) and withdraw all their money will owe a substantial tax penalty that can wipe out months, if not years, of savings. There are, however, a few exceptions. Some of the ways that you can withdraw money from a 401(k) without penalty include:

You're older than 55.
You're disabled.
You have medical expenses that exceed 7.5% of your income.
You're a reservist called to active duty.
You cash out in equal installments spread out over your remaining life.
You live in an area where the IRS has specifically waived penalties because it is a designated disaster area.
You have a terminal illness.

How to Cash Out a 401k When Terminated

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Cashing out a 401K when terminated: FAQ

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