When you leave your job, what happens to your old 401(k) account?

No matter what you do, the money you saved remains yours. As for what to do with the old account, you’ve essentially got four choices.

1. Keep the money in your old 401(k) account

Leaving your retirement money where it currently resides is probably the easiest solution. In most cases, there’s no harm in keeping your money where it is.

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Still, there are a few disadvantages:

  • You may have to maintain a minimum balance to keep your account open
  • You may be limited to certain investment choices, leaving you few options if you’re unhappy with your returns so far.
  • If your previous company switches 401(k) providers or gets bought you, you may not know your login information, and it could be a nuisance to access it.
  • Some 401(k) providers may charge a fee, such as an annual expense to maintain an account.

In some instances, your old 401(k) plan may force you to close your account. In this case, check to see how much money you have in it, suggests Corey Purkat, a certified financial planner (CFP), accredited investment fiduciary (AIF) and founder and CEO of Northwoods Fiduciary Advisors. In most cases, plans that have less than $5,000 already have a plan in place for managing your money.

“There may be provision that accounts with less than $1,000 are automatically ‘terminated,’” he says. “Usually you’ll get a check for that balance, whereas accounts greater than $1,000 but less than $5,000 may be rolled over to an IRA.”

Your plan staff may ask you to make a decision, such as roll it over into another plan or receive the balance in a check. Getting the cash comes with taxes and penalties — to avoid them, check the terms of your plan to see if this is what will happen and find out how much time you have to choose an alternative.

2. Roll it over into an IRA

If you want to move your money, you can roll it over to a new or existing IRA account. You can choose which type you want, traditional or Roth. If you have a traditional 401(k), it may make sense to transfer it into a traditional IRA, and into a Roth IRA if you have a Roth 401(k).

Both types of IRAs allow you to contribute a maximum of $5,500 per year or $6,500 if you’re 50 and older. You may be limited to lower contributions or may not be eligible to contribute to IRAs if you’re single and make more than $118,000 or are married filing jointly and make more than $186,000 annually. Those who want to maximize their retirement savings or have a significant amount in their 401(k)s may want to look at other options.

If you do roll over your old 401(k) into an IRA, you have two options: a direct rollover or an indirect rollover. A direct rollover is where the money is transferred from one account to another. All you have to do is to make sure you have the necessary paperwork to complete the transfer.

An indirect rollover means you will handle the money. Your old 401(k) provider writes you a check, then it’s your responsibility to deposit the cash into your IRA account. Keep in mind that you have 60 days after getting the money to deposit it into an IRA before it’s subject to an early-withdrawal penalty, as it’ll be considered taxable income at that point. Your employer also may be legally obligated to keep a minimum of 20 percent of your money and send it to the IRS for income taxes.

Keep in mind you might not have access to all the funds in your 401(k). While you own all contributions you made to your 401(k), your employer’s contributions may follow a vesting schedule. For example, a third of your employer’s contributions may vest every year, so you’ll be fully vested after three years of service. Before deciding to roll over your money, check to see if the 401(k) plan has a vesting schedule and what that means for your old employer’s contributions.

3. Move funds to a new 401(k) account

If your new job offers a 401(k) or another type of retirement plan, you may be able to move the money over to the new one. Check with your current employer to see if that’s possible. The advantage is you have all your money in one place and, in theory, this makes it easier to manage your retirement funds.

However, you may not want to choose this option if you discover that the fees are too high or aren’t thrilled with the investment options offered through your new plan. Also, if there’s a waiting period before you can participate in your new 401(k) plan, you may have to wait before you can roll your old account to a new one.

Whether you do a direct rollover or indirect rollover, take care to follow the directions to avoid penalties.

4. Withdraw the cash

You’re technically allowed to withdraw the money from your 401(k) when you leave your job. However, this is probably not a good idea, as the amount you withdraw will count as taxable income unless you’re 59 ½ or older. Not only that but you’ll also face a 10 percent penalty. Given the amount you’ll need to pay, this option usually isn’t the best one.

“Remember that your 401(k) is for retirement and it’s not a bonus or an extra payday,” Purkat says. “It may be enticing to suddenly have access to more money, but using the money will be a very short-term fix.”

Make an educated decision

Whatever option you choose, don’t wait too long to take action after you change jobs. Yes, take the time you need to research your options, but take care of it as soon as possible to avoid wasting money or, even worse, forgetting about the account.

“Ideally, you want to research your options before you leave your current job,” Purkat says.

MagnifyMoney is a price comparison and financial education website, founded by former bankers who use their knowledge of how the system works to help you save money.