What happens to assets in a 401(k) if an employee leaves the company?

When an employee leaves their company, the assets in their 401(k) plan do not simply vanish or lose value. Instead, the employee typically has several options regarding their retirement savings. The correct choice highlights that the employee can roll over their 401(k) funds into an Individual Retirement Account (IRA), leave the assets in the current 401(k) plan if the plan allows it, or choose to cash out the account.

Rolling over to an IRA is often a favorable choice, as it allows the funds to continue growing on a tax-deferred basis, providing more flexibility in investment options compared to a 401(k). Keeping the funds in the current plan can be advantageous if the plan has low fees or good investment options. Cashing out, while available, usually comes with tax consequences and potential penalties if the employee is under the age of 59½.

The other choices present less accurate scenarios regarding the fate of the assets after an employee leaves a company. It's essential for individuals to understand these options to make informed decisions that align with their retirement savings goals.