Four decisions arrive with a separation date and equity on the books, and only two of them can be lost by waiting. The 401(k) is not one of the two, though a distribution paid to you carries mandatory withholding of generally 20% and a 60-day rollover clock, per IRS Topic no. 413.
Unvested equity is already decided
Unvested RSUs and unvested options end at the separation date. Most plans cut vesting off there, and nothing between now and then changes that.
Worth reading the grant agreement anyway, because some plans accelerate vesting on a qualifying termination, and a severance agreement can carry its own separate equity provision. But if the plan says forfeited, it is forfeited, and that number belongs in the net worth math as a subtraction rather than on the decision list.
Vested shares are a tax-timing question and a concentration question at once
Vested RSU shares are already owned and already taxed as income at vesting. What is left is when to sell, and that is two questions wearing one coat.
The tax side is crowded this year. Severance, final pay, an accrued PTO payout and everything that vested before the separation date all land in the same calendar year, so a sale of appreciated shares stacks capital gain on top of an income year that is already unusually high.
Selling into that year is not automatically wrong. If the position is a large share of liquid net worth and the search may run long, concentration is the bigger of the two problems and the tax is the price of removing it.
Keep in mind the reverse holds too. With cash on hand to cover the search and a position that is a modest slice of the total, waiting is a real option, because next year's bracket is the one variable in this that genuinely changes.
The option window is set by your plan document, and it does not reopen
Vested options carry a post-termination exercise window, and the length of it comes from the plan document and the grant agreement, not from a general rule. Two grants at the same employer can run on different terms.
This is the only one of the four that can be lost by doing nothing. Past the date the option is gone, in the money or not. No appeal, no extension, no rollover. Most plans impose strict post-termination exercise deadlines. Individuals should consult their grant agreements and plan documents regarding the specific terms applicable to their awards.
Exercising costs cash. The strike price is due, and for non-qualified options the spread between strike and fair market value is compensation income at exercise. Incentive stock options work differently. The spread does not hit ordinary income at exercise, but it is an adjustment for alternative minimum tax, and that bill arrives at filing, months after the cash left. Our post on exercising ISOs and how the AMT actually gets triggered walks through those mechanics in detail.
The tradeoff is not comfortable. Exercising spends cash during a job search on a position that may be illiquid or volatile. Letting the window close spends nothing and ends the position permanently. If the strike sits close to or above current value, letting it go can be the right answer, but that is a judgment about value, not about the deadline. The deadline runs either way.
The 401(k) has three options and no deadline
Three choices: leave it in the plan, roll it to an IRA or a new employer's plan, or take it in cash. None of them expire.
Cash is the expensive one. A taxable eligible rollover distribution paid to you is subject to mandatory income tax withholding, generally 20%, even if the intent is to roll it over later, and there are 60 days from the date of receipt to complete the rollover, per IRS Topic no. 413. Roll it after withholding and the withheld amount has to be replaced from other funds to defer tax on the entire taxable portion. A direct rollover is not subject to that withholding at all.
Then the additional tax. IRS Topic no. 558 explains that a 10% additional tax applies to certain early distributions from qualified retirement plans, generally those received before age 59 and a half.
One exception matters at exactly this moment. Topic no. 558 lists an exception for “Distributions made to you after you separated from service with your employer after attainment of age 55.” That exception belongs to the employer plan. Move the balance to an IRA and it does not travel with the money, which is the one case where leaving the balance where it sits, at least until 59 and a half, is worth pricing before anything moves.
The order that matters
First, the option window, because it is the only item with a date set by someone else and nothing behind it. Finding the document takes an evening. Knowing the date does not commit anyone to exercising.
Second, the vested shares, because that answer sets the cash plan and the cash plan sets how long the search can run. The tax answer follows the cash answer, not the other way around.
Third, the 401(k), last, because nothing about it expires while it sits. The only clock is the 60 days from IRS Topic no. 413, and that clock does not start until a distribution has been paid to you.
The usual order gets set by whatever arrives with a form attached, and the 401(k) paperwork is the part of a separation that comes with forms. The exercise window lives in the grant agreement, which is a document from the year you were hired rather than a document from the week you are leaving.
The four decisions side by side
| The decision | Is there a deadline | What it costs to get wrong |
|---|---|---|
| Unvested RSUs and options | Yes. The separation date, set by the plan. | Nothing recoverable. Forfeited at separation unless the grant or the severance agreement says otherwise. |
| Vested shares, hold or sell | No | Tax paid in a year you did not pick, or a concentrated position carried through a drop while unemployed. |
| Vested options, exercise or let expire | Yes. The window comes from your plan document and grant agreement. | Permanent. The option expires and does not come back, in the money or not. |
| 401(k), leave, roll or cash out | No, until a distribution is paid to you. Then 60 days to complete a rollover, with mandatory withholding of generally 20% (IRS Topic no. 413). A 10% additional tax applies to certain early distributions, generally before age 59 and a half (IRS Topic no. 558). | Withholding replaced out of other funds, a 10% additional tax, and the age-55 separation exception left behind if the balance moves to an IRA. |
Figures from IRS Topic no. 413, Rollovers from retirement plans, and IRS Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (page last reviewed or updated 27 May 2026). Both current as of 2026.
Frequently asked questions
What happens to my unvested RSUs when I get laid off?
They end at the separation date under most plans. A few plans accelerate vesting on a qualifying termination, and some severance agreements handle equity separately, so the grant agreement and the severance document are the two places that answer it. Outside of those, unvested is forfeited and there is no action that changes it.
How long do I have to exercise my stock options after termination?
The window comes from your plan document and your specific grant agreement, not from a general rule, and grants at the same employer can differ. Expiry is permanent, so the date is worth confirming in writing rather than from memory of an onboarding deck. Knowing the date does not obligate anyone to exercise.
Is it a bad idea to cash out my 401(k) after a layoff?
It is the most expensive of the three paths. A taxable eligible rollover distribution paid to you is subject to mandatory withholding, generally 20%, and there are 60 days from receipt to roll it over, per IRS Topic no. 413. IRS Topic no. 558 adds that a 10% additional tax applies to certain early distributions, generally those received before age 59 and a half.
I am 56 and was just laid off. Can I take from my 401(k) without the extra 10%?
IRS Topic no. 558 lists an exception for distributions made to you after separating from service with your employer after attainment of age 55. That exception attaches to the employer plan, not to you. Roll the balance into an IRA and the exception does not follow the money, which is the reason the rollover decision and the cash decision are worth working in that order.
Do I have to sell my vested shares when I leave?
No. Vested shares are already owned and already taxed as income at vesting, so holding them is a position choice, not a plan requirement. The two questions are how much of your liquid net worth sits in one stock and what bracket a sale lands in, given that severance, final pay and this year's vesting are already in the same tax year.
If you want a second read on the order
The exercise window is the only one of these four that is knowable today and gone later. Do you know which document yours is written in?
Our equity compensation at separation page walks through all four decisions and the sequence they are best worked in, and a complimentary conversation is available from there. Reading the grant agreement is usually the first hour of it. If that reading ends with nothing needing to happen for six months, that is a fine result.
Sources: IRS Topic no. 413, Rollovers from retirement plans. IRS Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs, page last reviewed or updated 27 May 2026.
This material is provided for educational and informational purposes only and should not be construed as investment, tax, legal, accounting, or financial planning advice. The information presented is general in nature and is not intended as a recommendation regarding any specific course of action. The treatment of stock options, restricted stock units, and other equity awards following separation from employment is governed by the applicable plan documents, grant agreements, employer policies, severance arrangements, and individual circumstances. Readers should review their plan materials and consult appropriate professionals regarding their specific situation. Before deciding whether to leave assets in an employer-sponsored retirement plan, roll assets to an IRA, transfer them to a new employer's plan, or take a distribution, individuals should carefully consider investment options, fees and expenses, services, withdrawal provisions, creditor protections, required minimum distributions, and other relevant factors.