What should I do with my 401(k)?

You may have moved on from a past employer, but don’t forget about your 401(k). There’s retirement money in there that’s all yours. You’ve got four basic choices for how you want to handle those funds: roll, stay, move or pay.

Stay where you are
You can keep your retirement assets in your former employer’s 401(k) plan and call it done. You’ll always be able to access the money in the future. But out of sight, out of mind?

• Maintain the same benefits. Your account can continue to grow tax-deferred, and you remain invested in the funds you’ve already chosen.
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• Contributions will end. You won’t be able to add money to your old 401(k). So if your employer matched your contributions, that stops too.
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• Expenses will continue. Compare the expenses and fees of your old plan with a new one, if available.
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• Know your choices. If your vested balance is $1,000 or less in your old job's 401(k) plan, your former employer may be able to automatically cash you out. To avoid that, you may have to elect another option during a certain time period. If your vested balance is between $1,000 and $5,000, your former employer may be able to roll your account into an IRA.

Move to your new company’s plan
If your new employer provides a 401(k) plan, you could be allowed to roll over your previous account into the new one. Then you’ve got it all in one place.

• Stay organized. Many employees are leaving a trail of forgotten 401(k)s as they jump from job to job. It’s easier to manage a single account.
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• Learn new rules. Your new plan may have different rules, such as withdrawal restrictions. Check the summary plan description (SPD) or plan document for more information.
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• Review your investments. Your choice of investments is limited to what your new employer offers, so be sure you’re okay with the options.

Roll it over to an IRA
A “rollover” is when you take money from one retirement plan or IRA (individual retirement account) and move it into another retirement plan or IRA. By rolling your retirement savings into an IRA, you continue to enjoy tax-advantaged growth potential.

• Consolidate and concentrate. You can roll over any number of 401(k) accounts into a single IRA and continue making contributions.
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• Know your limits. There are contribution limits to how much you can contribute each year to an IRA or 401(k). Don’t forget that you could always contribute to both!
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• Choose traditional or Roth. A traditional IRA gives your money the potential to keep growing tax-deferred. A Roth IRA — like a Roth account in a 401(k) or 403(b) — can provide tax-free growth potential and tax-free withdrawals. A financial professional can help you make the right choice.
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• Roll over. To avoid the money being subject to taxes and having income tax withheld, make sure you request a direct rollover where the money goes directly from your old plan to the IRA. If you request a cash distribution (i.e., a payment to yourself), you can still do a rollover to an IRA, but you must do so within 60 days of receiving your distribution.

Cash out

If you really need it, you can take money from your 401(k). But try to avoid this move if you can. Cashing out could leave you with a lot less in retirement. You may have to pay taxes and penalties, and you'll also be losing the tax benefits that come with a retirement plan account.

• It will cost you. If you make a withdrawal from your 401(k), your employer will withhold 20% of it. You also could pay federal, state and local taxes on that money. Plus, if you’re under 59 ½, you’ll probably pay a 10% early withdrawal penalty.

• See the big picture. While it may be tempting to think of that money sitting there with your name on it, don’t forget what you saved it for in the first place. Less money in your account means less potential growth, which then means less income for you when you retire

• Avoid impulsive decisions. The tax rules for a payout can be complicated, so talk to a financial professional about how it works and whether you’ve got any other options if you’re in a bind.