You have several choices: leave it where it is, take it with you, or cash it out.
You have four basic options for handling your 401(k) when you leave your job, whether you quit, are laid off, or are fired.
Which option you choose will depend on a number of factors, including whether you're in need of money and whether your new job has a 401(k) plan.
Leave It With Your Former Employer's Plan
As long as you have the minimum amount required (which varies from plan to plan), you can leave your money where it is. Of course, this means you can't make contributions to it any more. And, you'll have to keep track of the plan after you move on: Investment options and fees may change, and you could be taken by surprise.
Many employees find it more convenient to have all their retirement accounts in one place. For that reason, it might makes sense to arrange a rollover.
Roll It Over Into a New 401(k)
If you get a new job that offers a 401(k) plan, you can roll over your existing 401(k) into the new plan. The transfer is not taxable and has the benefit of keeping your retirement monies in a single account.
Roll It Over Into an IRA
If you have an Individual Retirement Account (IRA), you can roll over your 401(k) into it. Many people choose this option to keep their accounts in one place. As with a 401(k), IRA contributions (including rollovers) are tax-deductible, but you pay taxes on withdrawals.
Another option is to roll your 401(k) into a Roth IRA, although you'll have to pay tax on the money when you transfer it. Withdrawals, however, are tax free.
Cash It Out
This is probably the most tempting option, but it comes at a big cost. If you withdraw your money, taxes will be withheld at a 20% rate. Also, unless you're already at least 59 and a half years old, you'll have to pay an additional 10% penalty on top of the taxes. If you choose to go down this road, contact your HR department or your 401(k) plan provider to arrange the cash-out.
Bottom Line
As you can see, there are pros and cons to each option. The best strategy for you will depend on your financial situation, how much money you have in the account, your age, and other factors.
You should get some expert advice before making a decision, particularly if there's a lot of money at stake.
