Leaving one job for another can be an exciting move, but changing companies can present some logistical challenges, such as what to do with your old 401(k) plan. While you have options to choose from, some may be better than others.

Leave It With Your Former Employer

• If you have more than $5,000 invested, most plans allow you to leave your 401(k) where it is once you leave your employer.
• If you have between $1,000 and $5,000 invested and your previous company will not permit you to keep the plan with them, they are obligated to help you set up a rollover IRA for the funds.
• If you have less than $1,000 invested, the company may issue a lump-sum distribution. You can then roll the money into a new employer’s plan or a rollover IRA as long as you are within 60 days of terminating the old plan.

If you have a substantial amount saved, and if you are happy with your plan portfolio, keeping your 401(k) with a former employer could be a good idea. However, if the plan’s investment options or fees are less than ideal, you might consider some alternative options.

Roll Your 401(k) Over to Your New Employer

Check to see if your new employer offers a well-structured and cost-effective 401(k) as well as when you are eligible to participate. As soon as you are enrolled in a plan with your new employer, you can roll over your old 401(k) via a direct transfer. This will mitigate any risk of owing taxes or missing a deadline.

You can also choose to have the balance of your old account distributed to you in the form of a check, but you must deposit the funds into your new 401(k) within 60 days or risk owing income tax on the whole balance. Before liquidating your old 401(k) account, be sure your new account is active and equipped to receive contributions.

Roll Your 401(k) into an IRA

If you are not moving to a company that offers a retirement plan, you can roll your old 401(k) into an IRA. You will open this account on your own, through a financial institution of your choosing. This option provides vast possibilities as you are no longer limited to an employer’s options, allowing you to enjoy investment freedom.

Cash It Out

Nothing is preventing you from liquidating on old 401(k) and taking a lump-sum distribution, but most financial advisors will caution against this move. Not only does it slash your retirement savings, but you will be taxed on the entire amount and probably owe an additional 10% withdrawal penalty. If you have a significant amount in an old account, such a tax burden likely won’t be worth the windfall.