Moving Your 401k When You Leave
When you leave a company with a 401k plan you have to decide what to with that money.
You could leave it where it is. This may not be your best option. I've rarely heard of 401k plans with a great choice of low fee, high performance funds.
You could roll it over into a 401k with your new employer. If the new employer has a great selection of low fee, high performance investments that you like there is no harm. Again, I haven't heard of very many cases like this.
You can also roll your 401k over into an IRA. This is what I have done. This lets me choose what company I'm dealing with and allows me to invest in a very broad range of mutual funds and stocks. I like the flexibility and good performance this option gives.
If you do elect to roll over your account to an IRA make sure you roll it over to a new IRA account and you don't put any other IRA contributions into that account. Why? If you do this you are likely eligible to roll this money back into a 401k at a later time. You may decide to do this because some 401k plans allow you to borrow against your plan. This can come in handy in certain situations like dealing with a significant health problems or paying your children's college bills.
Actually, you no longer have to segregate rollover money into an IRA designated "rollover". These rules have changed recently and you can lump all of your IRA money together in one account. Later, if you decide to put 401k money back into another plan, you still can.
thc | October 30, 2005 06:47 PM
That's good news. Although I can imagine the accounting can get pretty hairy.
scott | October 31, 2005 08:41 AM