what to do with my 401k retirement after leaving my job?

There are several methods for taking care of your 401(k) after leaving a job. Depending on your personal circumstances will determine what you ultimately would do with the money. Here are some options to consider.

You could leave the money in the plan. Sometimes people leave their old job and decide not to move their 401(k) for a variety of factors. One of those factors may be that they are happy with the plan. The upside to this is that there is nothing for you to do other than make sure you monitor the plan and your investment strategy. The downside is that you are generally kept up to date as to changes in the plan in a timely manner. You should also check with the plan provider and rules of the plan because some companies don’t allow you to stay with the plan once you leave the company. If your balance is under $ 5,000 – they could send you a check and withhold taxes if you don’t move the funds.

You could also roll the funds to the new company as long as the plan allows it. This can be beneficial and possibly save you some money and time by not having to go through the process of opening a brokerage or other IRA account. Your money would move from the previous plan to the new plan without any taxes as long as it is a direct rollover. You DO NOT receive a match on rollovers or transfers to a new plan. You only receive a match on contributions that you make through payroll.

You could withdraw the money from the current 401(k). Doing this is not generally the best option since you will be hit with both taxes and a 10% penalty if you are under 59 1/2. If a company sends you a check directly that is in your name then they are required to hold back 20% for taxes. This is rarely a good option.

You could rollover the money to an IRA: This option allows you to open your own individual retirement account and make trades in the account into any number of investment options. Keep in mind that in order to preserve the taxes you need to do a “direct” rollover. That is a specific type of rollover in which there would be not taxes held back. Generally the check from the 401(k) is written directly to the financial institution for the benefit of (FBO) and then your name.

Lastly, you could take the money out of the 401(k) and roll it to a roth 401(k). There is no 10% penalty for doing this and taxes are not required to be withheld at the time of the rollover. So if you have $ 50,000 in the 401(k), you would roll all $ 50,000 to the roth (if you want to do it all). My opinion is that this is a good option if you are younger and willing to pay the taxes from OUTSIDE of the rollover. In another words, don’t use the 401(k) money to pay the taxes. If you are older it may make sense to do this if you are confident you don’t want or need the money and are planning to pass it to your children, giving the money even more time to grow. Also with a Roth there is no 70 1/2 withdrawal requirements. One item to keep in mind, when you roll money from a 401(k) to a Roth IRA, there is a 5 year holding period to receive the full tax-free benefits of the roth. This 5 year holding period applies no matter your age.

I hope this helps as I realize this is a book!
Stephen