• Money
    • Budget
    • Shop
    • Travel
    • Stories
  • Career
    • Advice
    • Entrepreneurship
    • Freelance
    • Small Business
  • Investing
    • General
    • IRA + 401K
    • Stocks + Bonds
    • Retirement Planning
    • Estate
  • The Basics
    • Student Loans
    • Credit Cards
    • Debt
    • Taxes
    • More
  1. Home
  2. Investing
  3. Retirement Planning
  4. Can I Cash Out My Pension if I Am Terminated?

Can I Cash Out My Pension if I Am Terminated?

By: Candace Webb
  • Share
  • Share on Facebook

Termination from your job usually includes cleaning out your desk, turning in your company equipment and being walked out the door. It may be only after you get home you remember you have quite a bit of money in the company pension fund. A federally mandated program, Employee Retirement Income Security Act protects you from losing your pension even if you are fired.

ERISA

Your pension is protected through ERISA regardless of why you were let go from your job. The program is in place so you can retire at the appropriate age and collect your pension from former companies, even if you have been gone for years. Pensions are retirement benefits provided by your employer.

Early Pay Out

Some companies set the pension program up to allow for an early cash out. Companies not interested in tracking and managing the pension funds of fired employees may find it easier to let the terminated worker take the money with him when he leaves. In other cases companies may offer terminated workers some choices. The terminated employee can cash out the plan or he can choose to leave it where it is until he retires.

Vested Plans

If you work with a company that has a vested pension plan, whether you can cash it out upon termination depends on whether you are vested at that point. Vesting is earned by working for the company for a pre-determined time. For example, your company agreed to match your pension fund contributions from your paycheck. The company standard is after two years employment you are 50 percent vested, at three years you are 75 percent vested and at five years your are 100 percent vested. If you are terminated at the three year mark and cash out your pension you will receive your contributions plus 75 percent of the money your company contributed. If you are terminated before the two years has passed, you will only receive your contributions back.

Video of the Day

Option

You will be penalized if you cash out your pension plan early. A better option may be to roll the funds into an IRA plan. This option eliminates any financial penalty for removing the money from your former company. Penalties for cashing out and not rolling it into another plan can be as high as 10 percent if you are younger than age 59 1/2. There is no penalty if you are older than age 59 1/2 when you withdraw the funds. Employers must withhold 20 percent as income tax, therefore a person under 59 1/2 who does not roll the funds over could face a 30 percent combined tax and penalty.



Show Comments

Related Articles

New Rules of Retirement

New Rules of Retirement

Investing
Retirement Planning
By: Jaime Guillet
Early Lump Sum Withdrawal From a Pension Plan

Early Lump Sum Withdrawal From a Pension Plan

Investing
Retirement Planning
By: Steve Webb

PARTNER CONTENT

They Paid Off $218K of Debt—Without Windfalls or Six-Figure Salaries

They Paid Off $218K of Debt—Without Windfalls or Six-Figure Salaries

Laws on ESOP Payouts

Laws on ESOP Payouts

Investing
Retirement Planning
By: Will Conley
Vested Pension Benefits

Vested Pension Benefits

Investing
Retirement Planning
By: Corr S. Pondent
Can You Still Collect Unemployment If You Cash in Your 401(k)?

Can You Still Collect Unemployment If You Cash in Your 401(k)?

Investing
IRA + 401K
By: Linda Ray

Get Weekly Savings& Finance Tips.

  • Money
  • Career
  • Investing
  • The Basics
  • About
  • Contact Us
  • Terms
  • Privacy Policy
  • Copyright Policy
© 2019 Leaf Group Ltd. Leaf Group Media

Get Weekly Savings
& Finance Tips.

Money Made Easier.

Please enter a valid email.