Rollover Help for your 401k, 403b, or other Retirement Plan

If you're changing jobs or retiring you'll have to make a decision about what to do with your retirement money.

Basically you have four choices:

  • Leave it in the current plan with the former employer. As long as you have 5k in the plan you can probably leave it right in the plan.This can make sense if you really like the investment choices in the plan or if you need more time to make a decision. There are some drawbacks- you are limited to current investment options and these plans can always change. The employer can select a different provider with different investment choices and different rules. People have tendency to forget these plans .
  • Roll over into Individual Retirement Account (IRA) Many companies call this a new Rollover IRA. You can establish this account with mutual fund companies and brokerage firms and have almost unlimited investment choices.Unlike 401k plans that offer a "menu" of funds you'll have more investment choices and control.In addition, you'll have access to investment advice that really can't be provided while your money is in a 401k. The Rollover IRA account is also much simpler when you start to take distributions after age 59 1/2.

In addition this option allows penalty free withdrawals for first time home purchase and college education and a stretch out for beneficiaries who may inherit this IRA reducing their taxes.

This direct rollover will give you more control over the investment choices and the ability to manage the money better.

  • Move money into your new employers plan. This choice does give you fewer accounts to monitor and the possibility to borrow against the balance. Many new employers still do not allow this and you are limited to their menu of investment choices. You may be able to borrow from this plan however. Contact your new benefits office and discuss this possibility.


  • Cash Out. This rarely makes sense. You'll pay taxes on this money, incur a 10% penalty (under age 59 1/2) and you'll lose the powerful benefit of deferring taxes on the growth of that money. Also be aware if you cash out or do what's called a lump sum-your plan will withhold 20% for the IRS. Its basically a down payment of tax on what Uncle Sam assumes is a withdrawal, even if you're planning a rollover.

Rollover 401k into an IRA

Here's more information on our site on how to complete your rollover:

How to rollover your 401k

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