“A plan participant leaving an employer typically has 4 options (and may engage in a combination of these options), each choice offering advantages & disadvantages. Read more about those 4 options below (in no particular order)”

1. Leave the money in his/her former employer’s plan, if permitted

Advantages

– Easy, No extra steps required

– Future growth & earnings of your account stay tax-deferred

– Can decide to rollover into a new plan or IRA in the future

– Assets protected from claims by creditors

Disadvantages

– Limited investment options

– 401(k) plans may have higher fees than other options

– Can no longer contribute to the account

– May not be able to make changes to investments or money inside the plan

– Difficult to manage assets in multiple places

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2. Roll over the assets to his/her new employer’s plan, if one is available and rollovers are permitted

Advantages

– Can combine accounts in one spot

– Can adjust investments to anything the new plan allows

– Growth & earnings inside the account continue to accumulate tax-deferred

– The new 401(k) may have lower fees than your previous plan

Disadvantages

– The plan may be higher cost than other investment options available

– You’re limited to only the investment options your employer has chosen to include in the plan

– The new 401(k) may have higher fees than your previous plan

– Rolling over company stock could have negative tax consequences (please consult with a tax pro if you hold company stock inside an old plan)

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3. Roll over to an IRA

Advantages

– Money continues to grown & earn tax-deferred

– You may be able to lower your investment fees

– You will have far more investment options available to you, depending on which company you choose to open your IRA with.

– Can make ongoing contributions into the IRA

– You may be able to consolidate multiple old accounts into one IRA and simplify the management of those accounts

– IRA may come with additional services such as retirement income planning, social security planning and more

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Disadvantages:

– Could impact your ability to perform Roth IRA Conversions in future years

– Your IRA may not have the same investment options your 401(k) had

– IRA assets are typically only protected from creditors in bankruptcy cases.

– RMD’s begin at age 70 1/2

– Rolling over company stock could have negative tax consequences (please consult with a tax pro if you hold company stock inside an old plan)

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4. Cash out the account value.

Advantages

– Immediate cash is available to you

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Disadvantages

– Lose a large portion of your retirement savings the form of taxes in the year it was distributed.

– The entire lump sum is subject to a 10% penalty if you’re under the age of 59 1/2.

– The money will no longer grow tax-deferred.

– No longer have a retirement account to draw from throughout your retirement years.