According to the Profit Sharing/401k Council of America, the amount of 401(k) accounts left in place by former employees is steadily rising, with up to 22 percent of all accounts falling into this category. Depending on your plan's policies, you generally can keep this money in the account when you leave employment. However, you might want to withdraw these funds, or just a portion of them.
Why a Partial Withdrawal
Perhaps you want to leave some of the money in the 401(k) to take advantage of the potential investment gains. You might be older than 55, and eligible to withdraw funds from a 401(k) with a company you just left. Because of your age you could withdraw tax-free, but maybe you don't need all of the money at once. You also might want to transfer part of your 401(k) into an IRA, to diversify your investments.
Contact the Trustee
Contact the trustee of the 401(k) account to initiate a partial withdrawal. You should still be receiving statements on any 401(k) from a previous job, and the contact information should be on the statement. If not, a phone call to your previous employer's human resources department will get you this information. Once you get in touch with the trustee of the account, you can request a withdrawal for the amount you want. Most plans have their own process for this request. Once it's processed, the trustee should issue you a check or make an electronic transfer to your checking account for your requested amount.
Unless you have a Roth 401(k), you pay taxes on the amount you withdraw from your 401(k) account. In addition, if you withdraw from a 401(k) before age 59 1/2, you pay a penalty of 10 percent of the withdrawal amount in most cases. The penalty may be waived for special circumstances. For example, if you are totally and permanently disabled, you can withdraw without penalty. The same is true if unremimubrsed medical bills exceed 7.5 percent of your income. By making a partial withdrawal, only taking the amount that you need, you will reduce your taxes and penalties.
Roll to Current 401(k)
Having multiple statements coming in each month for many different 401(k) accounts from previous employers can become frustrating, and it might be easy for you to lose track of these accounts, or even to forget after a while that you have them. You can transfer money from inactive 401(k) accounts from previous employers into your account with your current employer. Contact your human resources department or your current 401(k) trustee to get this process started. Since you're making a partial withdrawal, make sure to specify the amount you wish to withdraw. The trustee will initiate a trustee-to-trustee transfer from each of your inactive accounts, accepting the money into your current company's 401(k) plan. These trustee-to-trustee transfers are completely free of taxes and penalties.
Roll to IRA
If you don't have a 401(k) plan with your current employer, you can transfer money from inactive 401(k) accounts into your individual retirement account. If you don't have an IRA, you can open one with most banks, brokerage firms or mutual fund companies. From this point on the process is similar to a 401(k) transfer, except you notify your IRA's trustee that you wish to transfer funds, and how much of the account you wish to transfer. By handling the transfer through the trustee, you avoid taxes and penalties on this transaction.