10 401(k) Rules That May Catch You by Surprise

June 13, 2021

If your 401(k) balance is less than $5,000 and you leave your job, your plan can transfer your money to an IRA without your consent. This normally involves selling your investments and moving the cash. If the market's down, you may incur losses in that process.

Your new IRA will automatically invest the funds in a default security that's intended to preserve capital. In other words, your funds will be invested conservatively. That may not be what you need if you're still working to grow your retirement savings.

If your balance is less than $1,000, your plan can cash you out by mailing you a check. In that case, you must deposit those funds in an IRA within 60 days to avoid penalties and taxes.

These automatic force-outs disrupt your savings growth by liquidating your investments to cash or very conservative securities. If this happens to you, minimize your downtime by reinvesting the funds as soon as possible.

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