The amount of time it takes your 401(k) custodian to send your funds to you depends on a number of factors including, the manner in which the funds are disbursed and the timing of your request to receive the money. 401(k) withdrawals are subject to taxation, and depending on your age, you may also have to pay an early withdrawal penalty.
401(k) plans typically contain mutual funds comprised of a variety of underlying securities such as stocks and bonds. Mutual fund shares are priced and traded after the stock market closes for the day because the shares are priced by totaling up the value of all of the underlying securities as of the close of the market. You must submit your request to have your shares sold prior to the close of the market at 4 p.m. Eastern Standard Time. If you make your request after 4 p.m. EST, the shares are not sold until after the close of the market on the next business day.
"T Plus Three" Rule
When you buy shares in a mutual fund, your broker buys the shares on your behalf on the day that you make your purchase request. Under federal securities law you have three business days to pay the brokerage firm for the shares, and if you fail to do so the broker can keep the shares or sell the shares to recoup its money. Investment insiders call this rule the "T plus three" rule. When you sell shares, no rule exists that specifies how quickly the investment firm must disburse your sale proceeds. It could happen on the same day that the sale occurs or it could take a few days; it depends on your 401(k) custodian.
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Generally, 401(k)custodians disburse money by mailing out checks. If you make your withdrawal request on Friday after 4 p.m., your sale will occur on Monday after 4 p.m. It could then take the investment firm a few days to transfer the money into the form of the check and several more days for your check to reach you via the mail. However, you can pay a fee to have your check sent by overnight express delivery or sent to you via wire transfer, in which case you should receive the money the day after the sale.
When you cash in your 401(k), the Internal Revenue Service requires your 401(k) custodian to withhold 20 percent of your disbursement to cover taxes. If you are under 59 1/2, you have to pay a 10-percent penalty tax in addition to regular income tax. Depending on your overall income, you may get some of this money back when you file your taxes, but in the short term do not expect to receive your entire account holdings when you cash in your account.