Here’s What Happens to Your 401(k) When Your Company Closes Down

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Just because your company is closing doesn’t mean your retirement savings are doomed. Read on to learn more. 

Many companies offer their employees the benefit of a 401(k) plan. And funding one of these accounts can be crucial if your goal is to live comfortably in retirement.

But at some point, your company might decide to close down, whether because the owners want to retire or because it’s no longer cost-effective to keep the business open. In that case, you’ll clearly be out of a job. But what about your 401(k)?

Your money isn’t lost

Once your company goes out of business, the money you have in your 401(k) will stay where it is until your employer’s retirement plan is terminated — which is likely to happen shortly after the official closing date of your company. But that doesn’t mean you have to worry about losing out on your 401(k) balance.

The money you contributed to your 401(k) plan is yours for retirement. So if your old 401(k) plan is being terminated following your company’s closure, you’ll have the option to find a new home for it.

In some cases, you may decide to roll that 401(k) into an IRA at the same institution. For example, let’s say your 401(k) is being held at JPMorgan Chase. You may decide to just open an IRA there that you manage yourself. Or, you can open an IRA at a different bank and roll the money into that account. The choice is yours.

Another option may be to roll your old 401(k) into a new one if you’ve managed to secure a new job and know that you have access to your upcoming employer’s 401(k). This may be feasible if your employer gave you advanced notice of its closure and you were able to line up a new job fairly quickly.

Don’t leave your 401(k) where it is

In some cases, your 401(k) plan might remain open for quite some time after your company closes down. While you can technically opt to leave your 401(k) alone as long as your plan continues to be open, it’s generally not a great idea to do so.

Leaving an old 401(k) where it is could mean running the risk of forgetting about your money. Capitalize reports that the number of forgotten 401(k) plans has increased by more than 20% since May of 2021. And all told, there are more than 29 million forgotten 401(k) accounts just sitting out there waiting to be claimed.

So once you find out that your company is closing, it pays to ask your benefits department when your 401(k) plan will be terminated. And if your company is already closed and you’re already out of a job, contact your 401(k) plan administrator to find out what options you have for your money.

You may not want to wait until you find a new job to move your money out of your old 401(k). In that case, you can always open an IRA and roll the money into that account.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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