It will take seven to 10 days on average to receive the funds when you cash out your 401(k). How long it actually takes depends on your 401(k) account custodian. In most cases, you will have some tax liability when cashing out your 401(k), so it is wise to consult with your financial or tax adviser to ensure cashing out your 401(k) is a wise move.
Holdings’ Time Frame
Your 401(k) contributions are generally tied up in mutual funds, which are a combination of stocks, bonds and other securities held within one fund. It isn’t a matter of your account custodian simply writing you a check once you’re ready to cash out your 401(k). Rather, your share percentage of the securities held within the fund must be sold and the money transferred to your account custodian. Once sold, this transaction may take no longer than three business days, according to federal law.
Custodian’s Time Frame
Once your account custodian sells your holdings and receives the money from the transaction, it normally takes an additional three to seven business days to issue you the check. This is not a set time frame, however, and each custodian is different. The best way to determine how long it will take your account custodian to send you your 401(k) money is to ask directly when you request the paperwork to cash out the fund.
Cashing Out the Fund
Cashing out your 401(k) plan is straightforward process. If you are cashing out your 401(k) with your current employer, contact your employer’s benefits administrator to obtain the required paperwork. If you are cashing out a 401(k) from a previous employer, contact that company’s benefits administrator. Fill out, sign and submit the necessary paperwork to begin the sales transaction of your holdings and the distribution of your 401(k) funds.
Most employers match employee 401(k) contributions up to a certain percentage. This increases the value of your 401(k) retirement plan exponentially. The catch is you must be “vested” or employed for a certain amount of time before you are eligible to have access to your employer’s contributions. For example, if your employer’s vesting period is two years, and you cash out your 401(k) prior to being employed for two years, you will lose your employer’s contributions to your 401(k) funds.
Your 401(k) is a retirement plan and the IRS doesn’t look fondly upon cashing the money out prior to retirement. Unless a Roth account, your 401(k) is also tax-deferred, meaning you haven’t paid taxes on the money yet. When you cash out your 401(k), 20 percent will be withheld and sent to Uncle Sam automatically. If you cash it out prior to retirement age, which is 59 1/2, an additional 10 percent will be pulled to cover the IRS’ early withdrawal penalty.
- Internal Revenue Service: 401(k) Resource Guide – Plan Participants – General Distribution Rules
- Internal Revenue Service: 401(k) Plans
- Internal Revenue Service: Tax Topic 424 – 401(k) Plans
- Internal Revenue Service: Tax Topic 412 Lump-Sum Distributions
- United Statements Department of Labor: Payment of Benefits
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