Personal Finance

I left my employer, and six years later found out they withdrew $20k from my account — what are my options?

Maurie Backman

Published: December 26, 2024 11:44 am

Key Points from 24/7 Wall St.

• If you’re not fully vested in your 401(k), your company can claw back its matching contributions.
• Funds you contribute out of your own pay are always safe.
• Be mindful of your vesting schedule before jumping to a new job.
• Also: Is your 401(k) optimized for your retirement plans? (Sponsored)

One of the biggest benefits of saving for retirement in a 401(k) is getting free money from your employer. Many companies that sponsor 401(k)s also match worker contributions to some degree. And if your employer match is a generous one, it could amount to a lot of free cash.

But what if you snag an employer match only to find that money taken back after the fact? It happened to the author of this Reddit post. And if you’re not careful, it could happen to you, too.

When a 401(k) vesting schedule comes back to bite you

A frustrated Reddit user posted that years after leaving their job, their employer took a whopping sum of money out of their 401(k). At first, that might seem illegal. But it turns out there was a reason that employee lost the money — they didn’t stay at their job long enough to get to keep it.

See, many employers offer 401(k) matches in an effort to retain employees. But what they don’t want is workers jumping ship right after getting a sweet match to enjoy. So what companies do to protect themselves is impose a 401(k) vesting schedule.

Now vesting schedules can look different from one employer to the next. In some cases, you might have to stay at your job for a certain number of years or you lose your match entirely. In other cases, you might vest gradually so that if, for example, you leave your job after a year, you don’t get your full employer 401(k) match, but you get a portion of it. Your company should spell out the terms of its vesting schedule in your 401(k) benefits package so you know what you’re dealing with.

Be careful when switching jobs

Any funds you contribute to your 401(k) out of your own paycheck are yours to keep no matter what. But while your employer can’t touch that money, it can claw back matching funds if you don’t stay with the company long enough to vest.

So if you have a generous 401(k) match and are thinking of switching to a new job, read the fine print and see what your vesting schedule entails. If you’re close to being fully vested in your 401(k), you may want to stick around a bit longer so you’re able to keep that money.

It’s also a good idea to work with a financial advisor to manage your 401(k) in general, and also, in the context of switching jobs. Vesting schedules aside, it’s usually not advantageous to leave retirement money in a former employer’s 401(k). An advisor should be able to walk you through some options for moving your money into a different plan, whether it’s your next employer’s 401(k) or an IRA you manage yourself.

Keep in mind that there can be tax consequences for botching a 401(k) rollover. In a nutshell, if you don’t move that money into a new plan within 60 days, you run the risk that the IRS will treat it as a distribution. From there, you could face penalties if you’re not old enough to access your retirement funds, and you could get hit with a giant tax bill. So it’s wise to get help moving your money around.