Laid off? What to do with your 401(k) in the first 60 days

A layoff forces a lot of decisions at once. Your 401(k) doesn't have to be one of them this week. Here's the order to do things in.

Losing a job is stressful enough without a retirement decision on top of it. The good news: if your balance is over $7,000, your old plan has to let you leave it there. You have time to do this right.

Week 1: Don't touch it, just gather facts

• Download your latest statement and save the plan's name, website and phone number.
• Check your vesting. Your own contributions are always 100% yours. Your employer's match may follow a vesting schedule, and any unvested part is forfeited when you leave.
• Confirm your last contribution and match posted. Your final paycheck's contribution can take a few weeks to show up.
• Update your personal email and address on the account, so plan notices don't go to a work inbox you can no longer open.

If you have a 401(k) loan, act early

This is the deadline that catches people. Many plans require the remaining loan balance to be repaid after you leave. If it isn't, the unpaid amount is treated as a distribution: taxable income, plus a 10% penalty if you're under 59½.

There's a way out. When the loan is wiped out because you left your job, you have until your tax-filing deadline for that year, including extensions, to deposit that same amount into an IRA and avoid the tax. Ask your plan for the exact payoff date and amount, in writing.

Are you 55 or older this year? Read this before you roll anything

If you leave your job in or after the calendar year you turn 55, you can take withdrawals from that employer's 401(k) without the 10% early-withdrawal penalty. You still pay income tax, but not the penalty.

That exception doesn't follow the money into an IRA. If there's any chance you'll need to draw on savings before 59½, consider leaving that amount in the plan and rolling over the rest.

Use the right money first

Severance, unemployment benefits and savings should carry you before your retirement account does. Every dollar you take out of a 401(k) early can cost you a third or more in taxes and penalties, and it stops growing for the future.

Days 30 to 60: choose where it goes

Once things settle, decide on a home for the money. Your choices are to leave it, move it into a new employer's plan, roll it into an IRA, or cash it out. Here's how the four compare.

Two things to check before you roll over:

• Company stock. If your 401(k) holds your employer's stock, ask a tax professional about "net unrealized appreciation" before you move it. Rolling it into an IRA can give up a tax break.
• Roth money. Roth 401(k) dollars roll into a Roth IRA, not a traditional one.

A layoff is a good time to ask one bigger question

If you're in your 50s, a layoff often changes the retirement timeline. It's worth asking: how much of this money do I need to keep growing, and how much do I need protected from a market drop before I start drawing on it? You don't need to answer that this week, but you'll want an answer before you roll anything over.