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Here are your options when changing jobs:

  1. Leave your balance with the old plan. You can keep your money with your current 401(k) plan as long as your balance is at least $5,000. But you won’t be able to make contributions, and you are still subject to the plan’s rules and limited investment choices. This may be a good option if you’re between ages 55 and 59 ½ and you will need your retirement savings soon.
  2. Rollover to your new employer’s 401(k) plan. This can be a good move if you are happy with the new plan’s investment choices and fees. Find out if your new employer’s plan accepts transfers; not all do.
  3. Rollover to an IRA. You can rollover your 401(k) to an IRA (Individual Retirement Account) at the financial institution of your choice. This gives you access to many more investment options, including individual stocks. Be sure to do a direct rollover so that taxes are not withheld.
  4. Cash out your 401(k). NOT RECOMMENDED! If you take a “lump-sum distribution”, you will have to pay income taxes on the money. You will also pay a 10% early withdrawal penalty if you’re under age 59 ½. Not only do you lose money, but you lose valuable time in building savings, and may never catch up.

If your account balance is less than $5,000, your employer may close the account and require you to take the money. In this case, it’s best to do a direct IRA rollover rather than taking the cash.