Meta confirmed on April 23, 2026 that it would separate approximately 8,000 employees, representing 10 percent of its global workforce, beginning May 20. The company’s chief people officer described the cuts in an internal memo as part of an ongoing effort to run the company more efficiently while offsetting the costs of its AI infrastructure buildout, projected at $135 billion for 2026, according to NBC News.
The layoffs follow several earlier rounds. Since 2022, Meta has eliminated roughly 25,000 positions across multiple restructuring efforts, according to The Next Web. The May round touches every major business unit and represents the largest single action since that period.
For workers receiving notices next month, the severance package resolves one immediate financial question. The 401k opens another, and the decision made in the weeks that follow will affect retirement wealth for decades.
The Four Options at Job Separation
When a worker separates from an employer, federal law provides four options for any existing 401k balance.
The first is leaving the funds in the former employer’s plan. This option requires no immediate action, preserves the balance and its investment allocations, and is available to any worker with a balance above $5,000 under federal law.
The second is rolling the balance into a new employer’s 401k plan. The third is rolling it into an Individual Retirement Account. Both options maintain the tax-deferred status of the funds. The Internal Revenue Service requires rollovers to be completed within 60 days of distribution. Workers who request a direct rollover, meaning funds transfer between plan administrators without passing through the worker’s hands, avoid the mandatory 20 percent federal withholding that applies when a distribution check is issued directly to the employee.
The fourth option is cashing out. Workers who withdraw before age 59 and a half owe a 10 percent early withdrawal penalty plus federal and state income taxes on the full amount, treated as ordinary income in the year of receipt. On a $28,000 balance, a worker in the 22 percent federal tax bracket with a 5 percent state income tax rate would owe approximately $10,360 in combined penalties and taxes, retaining roughly $17,640 of a balance built over years of contributions, according to IRS early withdrawal guidelines.
The penalty figure does not capture the full financial consequence. A $28,000 balance left intact and growing at a 7 percent average annual return would be worth approximately $107,000 in 20 years. Cashed out, that same balance becomes $17,640 with no further growth attached to it.
Who Cashes Out and Why
Approximately 41 percent of workers who separate from a job cash out their 401k rather than rolling it over, according to research published in the journal Marketing Science covering 162,360 terminating employees across 28 retirement plans. The cashout rate rises sharply as account balances fall, reaching as high as 80 percent for accounts under $1,000, according to Retirement Clearinghouse, a nonprofit organization focused on retirement savings portability.
The racial gap in cashout rates is both documented and persistent. Researchers at MIT Sloan School of Management, analyzing a linked employer-employee dataset covering millions of American workers, found that 23 percent of Black savers made an early retirement withdrawal in a given year, compared with 12 percent of white savers. The gap held after controlling for income, employer, and education level.
The Federal Reserve’s Survey of Household Economics and Decisionmaking found that Black families are more than twice as likely as white families to report annual household income under $25,000. Workers with fewer liquid assets outside their retirement accounts are significantly more likely to treat a 401k as an emergency fund when a job ends, according to the Government Accountability Office, the federal agency that audits government programs and public spending, in its review of retirement account leakage.
Outstanding Loans at the Time of Separation
Workers carrying an outstanding 401k loan at separation face an additional complication. Most plans require that outstanding loan balances be repaid within 60 days of job separation. Balances not repaid within that window are reclassified as taxable distributions, subject to the same 10 percent penalty and income tax treatment as a full cashout.
MIT Sloan researchers noted that job separation is the precise moment when workers most need access to liquidity and also the moment when plan rules make new 401k borrowing unavailable. Workers who cannot repay an outstanding loan balance within the required window and wish to avoid the penalty can roll the outstanding amount into an IRA using personal funds equal to the loan balance, provided the rollover is completed within the 60-day window. The IRS provides guidance on this option through its rollover rules publication at irs.gov.
How to Start the Rollover Process
The Department of Labor’s Employee Benefits Security Administration, which oversees workplace retirement plan compliance, recommends that separated workers contact their plan administrator within the first two weeks of separation to request rollover documentation and confirm the options available under their specific plan.
Workers who have not yet secured a new employer can roll their balance into an IRA immediately, preserving the tax-deferred status of the funds while the job search continues. The IRA rollover does not require new employment as a precondition.
Sources: NBC News, The Next Web, Internal Revenue Service, Marketing Science journal, Retirement Clearinghouse, MIT Sloan School of Management, Federal Reserve Survey of Household Economics and Decisionmaking, Government Accountability Office, Department of Labor Employee Benefits Security Administration
