Gusto 401(k) participants can use this article to explore account options after leaving an employer, like keeping the current account, rolling over funds, or taking a cash disbursement.
When you leave the company that sponsors your Gusto 401(k), you have several options for what to do with your account balance. You cannot make new contributions once you stop earning compensation from the sponsoring employer, but your existing funds remain invested until you decide what to do with them.
After leaving your employer, you can generally choose from the following options for your 401(k) funds.
Keep your funds in your Gusto 401(k) account
Roll over to a Gusto or external individual retirement account (IRA)
You can keep your 401(k) funds in your Gusto 401(k) after leaving your employer, and you can request a distribution at any time. You cannot make new contributions.
Gusto offers a 90-day grace period after your employment ends — no account maintenance fees apply during this time. After the grace period, we deduct a $4-6 monthly fee from your account balance.
You also continue to pay the annual account fee on assets under management. The exact rate depends on the pricing plan your previous employer selected. We deduct these fees from your account balance automatically.
Pro tip: Review our participant fee information and compare it against other providers before deciding whether to keep your account open long term.
Some 401(k) plans include a force-out provision — a plan rule that requires former employees with low account balances to move their funds out of the plan. The Internal Revenue Service (IRS) allows employers to set this threshold anywhere from $1,000 – $7,000 (not including rolled-over amounts).¹
To check whether a force-out provision applies to your plan, choose the path that matches how you signed in, then follow the steps.
Sign in to Gusto and go to Benefits. Under Savings, find 401(k) and select View Dashboard.
Go to Documents.
Go to Retirement.
From Resource library, open the latest Summary Plan Description.
Look for the section titled “Account Balance Less Than or Equal to $X,XXX” — the dollar amount varies based on your employer’s selection.
Sign in directly. Visit the Gusto Retirement sign-in page and sign in with your Gusto Retirement credentials, or use Gusto Single Sign-On (SSO). Learn more about SSO.
Go to Documents.
Go to Resource Library.
Open the latest Summary Plan Description.
Look for the section titled “Account Balance Less Than or Equal to $X,XXX” — the dollar amount varies based on your employer’s selection.
If your account balance falls below the plan's threshold after you leave your employer:
You will get an automatic rollover notice by email.
You have 30 days to provide alternative direction if you don't want your funds automatically rolled over.
If you do not take action by the deadline, your balance will be automatically rolled over to an IRA established in your name.
After your assets have been moved, the IRA recordkeeper will reach out to you directly with information on claiming your account. You will need to sign in and complete the onboarding steps.
After claiming your account, you will have full access to your assets and can update your portfolio or set up IRA contributions.
Note: A force-out can also occur if your former employer terminates their 401(k) plan entirely, regardless of your balance.
Depending on your plan, your forceout IRA will be set up with either Gusto or PenChecks.
Gusto IRA accounts start at $2 per month for balances of $10,000 or less in assets or $4 per month for balances more than $10,000.² Similar to a 401(k), there is also an annual account fee.³ You can learn more about how this account fee is calculated here.
PenChecks IRA accounts incur $3.75 per month for recordkeeping at the individual IRA level. If you choose to withdraw your funds, there’s an account closeout and distribution fee of 20% of your IRA balance, not to exceed $30.
Note: If you have more than one IRA with Gusto Retirement, balances are combined to determine whether you meet the $10,000 threshold, and the monthly fee is only deducted once.
A cash distribution is a withdrawal of funds from your retirement account paid directly to you in cash. While this option is available when you leave an employer, it comes with significant tax consequences that may reduce your savings. Learn how to request a cash distribution.
When you take a cash disbursement, here’s what to expect.
The IRS counts any pre-tax amount you do not roll over to an IRA or eligible retirement plan as taxable income
We withhold 20% of the pre-tax amount for federal taxes. You can typically opt to withhold more, but not less. State tax withholding may also apply.
Unless you qualify for an exemption, you may also owe a 10% early withdrawal penalty on the full amount when you file your taxes
To avoid taxes and penalties, consider one of these options.
Keep your funds in your Gusto 401(k) account
Roll over to your new employer’s plan
Roll over to a Gusto IRA or external IRA
When you complete a direct rollover to another qualified retirement account, you can generally avoid paying taxes and penalties altogether.
This information is for general education purposes only and is not intended to be tax advice. Consider consulting a qualified tax professional before requesting a distribution.
¹ While the law allows for a force-out level up to $7,000, Gusto Retirement only supports force-out provisions up to $5,000 at this time.
² For purposes of determining the IRA monthly base fee, account assets are based on the average daily balance over the billable month.
³ Investment advisory services for Gusto Retirement’s 401(k) (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an SEC-registered investment adviser. The annual account fee is calculated and deducted on a monthly basis at 1/12 of the annual stated rate (0.08%) based on the account balance on the last day of each month. For more information regarding fees and services, see the ADV 2A Brochure and Form CRS.