I am terminating my current employment. I am also planning to cash out my retirement plan. I am fully aware of the reasons why I should not do this but I have thought long and hard about it and it really is what's best for me. But my employer is saying that I am only able to cash out the portion of the account that I contributed and that the contributions from them can not be cashed out until retirement age. Can they do that if I am fully vested?
To answer the question specifically, ‘vesting’ is a term used to describe when an employee is entitled unconditionally to keep the money in a retirement plan. Therefore, you maintain control over any vested amount and your employer cannot withhold those funds from you. You may of course want to double check the vesting schedule to be sure you are in fact vested. There are two types of vesting schedules – the graduated method and cliff method. Your specific vesting schedule should be detailed in your employment agreement.
Of course there are other concerns in your scenario. Taking early distributions from your retirement plan can results in tax penalties, income taxes, and the opportunity cost on those tax-deferred assets can be significant. We rarely, if ever, advise a client to take an early distribution, but as you have already recognized every person's circumstances are different.
Here at RFA, we are currently offering a free 401(k) tuneup for anyone who has more questions about their own. We will take a look, analyze, and give some direct recommendations on your 401(k) because we believe it is crucial to understand the in's and out's of such a complicated plan. Just give us a call at (800) 682-3237 or email firstname.lastname@example.org and we are more than happy to help you out.
Stacy... Based on what you are telling me and the way I am understanding it the answer is NO they cannot just distribute the amount you put in and leave the vested company contribution balance in the plan. But before you go at them get a copy of the plan SPD and review the section about distributions and remember every plan is a bit different.
Will Orr 281-583-2277
Stacy While your decision to 'cash out' your 401k is not in your best interest. You can roll over the 401k to an IRA and then cash out. There is nothing your former employer can do about this.
Before you do this consult with a fiduciary adviser. They will help you protect your future self from your current self.
Ask for the Summary Plan Document. Take that to your advisor and they should be able to tell you exactly what you can and cannot do with your money. Every plan has different rules and their is no way to know with out the Plan Document.