Before you hit 40, you're likely to have at least 10 jobs, according to Bankrate. All of those jobs can mean an awful lot of 401(k) plans. When you leave a job, either of your own free will or because the employer lets you go, you have a few options when it comes to your retirement plan.
Leave It Alone
If your 401(k) plan has more than $5,000 in it when you leave a job, you can continue to keep the money in that account. Don't leave the money in the plan out of laziness, though. Some 401(k) plans have high fees, which negate the value of leaving the money in it. Others might not have the best investment options. Before you leave well enough alone, find out what you are paying in fees, if anything. Also review the investment options offered by the plan. You might find that they are very limited and you can do better elsewhere.
Rolling over your 401(k) into a Roth or traditional IRA might be your best option if your new employer doesn't have a plan, or if you find an IRA with lower fees and better investment options. You won't be taxed on the amount if you roll over to a traditional IRA. If you roll over to a Roth IRA, you will owe income tax on the amount, but won't owe tax in the future. If you roll over the funds from a 401(k) to an IRA, Roger Wohlner of US News and World Reports suggests that you complete a trustee-to-trustee transfer to avoid the possibility of penalties or taxes being withheld from the amount you roll over.
Roll over to New 401(k)
Roll over your old 401(k) into a new one offered by your new employer. You might need to keep the money in your old account for a few months before you can deposit it into your new 401(k), depending on the rules of your new employer. If you have a small balance in your old 401(k), you might need to roll the amount over to an IRA, then roll it over to the new 401(k) when you become eligible, to keep your former employer from cashing it out for you. Combining 401(k) plans makes sense for some people, since they will have fewer accounts to worry about. Your new plan might have lower costs and better options, too.
Cash It Out
Withdrawing all the money from your old 401(k) and putting it in your pocket might not be the best option, but it is an option. When you pull the money out of a 401(k), the provider will deduct 20 percent for income tax. You will also owe 10 percent as a penalty if you are under age 59 1/2. Taking the money from a 401(k) now drastically reduces the amount you will have when you retire. Some plans will automatically cash out the entire 401(k) if you have less than $1,000 in the account, according to Bankrate.