Your Contributions

• When you leave your job or are fired, you can take all of the contributions that you made to your 401k plan with you. The Internal Revenue Service mandates that employees must always be 100 percent vested in their own contributions. "Vested" means that you get to keep the money when you leave. Popular options include rolling the 401k plan money into your new employer's plan or rolling it into an individual retirement account.
  
  

Employer Contributions

• You may or may not be able to take your employer's contributions with you when you leave, depending on your company's policies and how long you worked for the company. Though some companies may vest their employees in employer contributions immediately, the Internal Revenue Service does not require it. Instead, employers can either use the cliff vesting plan or graded vesting plan. With the cliff vesting plan, employees can take up to three years to vest, but after three years, the employee must be fully vested. With the graded vesting plan, the employer can take up to six years to fully vest, but starting after the second year the employer must grant 20 percent vesting for each year. For example, under the graded vesting plan, if you have worked for an employer for five years, you would be at least 80 percent vested.
  
  

Withdrawing Money

• When you leave your job, the Internal Revenue Service allows you to remove money from your 401k plan even if you are not yet 59 1/2 years old. You will, however, have to pay a 10 percent early withdrawal penalty on your withdrawals. This penalty adds to your income taxes at the end of the year and is on top of the income taxes you would regularly have to pay on the distribution.
  
  

Early Retirement Exceptions

• If you leave your job after turning 55 years old, you can withdraw your 401k plan money immediately without having to pay an income tax penalty for an early withdrawal. Even with this exception, you still must report the withdrawal as taxable income, as you would any 401k plan withdrawal. When you file your taxes, you need to complete Form 5329 and note that your early withdrawal is due to retirement after age 55.