If you have a 401k plan left at an old employer, you have four options:
1. Leave it where it is
2. Cash it out (WE ARE GOING TO PRETEND THIS IS NOT AN OPTION)
3. Roll it over into your new employer's 401k plan
4. Roll it over into an IRA
Let's see which are our best options:
Leave it where it is:
· You may be paying a lot of fees on an account your no longer even adding money to
· Believe it or not, in time, you may forget that account is even there.
· You may have far better options for investing that money in other funds in your current employer's 401k or an IRA.
Cash it out:
· We shouldn't even be discussing this, should we?
· It may sound great to get this little bundle of cash that was unexpected. However, that's what it is going to be, LITTLE. Not only are you going to have to take taxes out of that money, you're also going to get hit with a 10% penalty if you cash out before your 59 ½ years old. Not to mention, you could be robbing yourself of many years of stable interest accrual on this money. Please, JUST SAY NO.
Roll your old 401k into you your new employer's 401k account:
· A reliable option if your current employer offers a wide range of well balanced and well-performing funds in their 401k plan.
· One positive, as long as you "roll" the old plan into the new one, there are no immediate tax or penalty consequences.
· If you are just unsure or nervous about making your own fund choices as with an IRA, it may be a more suitable choice for you.
Roll your old plan into an IRA:
· Many times, your associated fees will be much lower with an IRA than a 401k. Primarily if you are investing in funds as opposed to individual stocks.
· You may have infinitely more investment options with an IRA as opposed to your old 401k.
· You have more control over your costs, fees, and allocations with an IRA.
As you can see, most of the time, moving that old 401k somewhere else (not your pocket), usually makes sound financial sense. Decide if this applies to your situation and talk to a financial advisor about the rollover process.