401(k) Rollover Options

There are so many money questions we have to answer every day, thinking about what to do with your old 401(k) account now that you’ve changed jobs probably feels like an easy question to ignore. But ignore it at your peril. I know that sounds dramatic, but what you do with your old 401(k) matters.

There are basically three 401(K) rollover options and it’s important to avoid mistakes. Here are the options: 1. Leave the money where it is. 2. Rollover it over to your new job’s 401(k) plan. Or 3. Roll it to an Individual Retirement Account (IRA for short). There are a few benefits with each of them.

1. Leave the money where it is. You can leave the money right where it is. It will grow, slowly. Like a fruit tree that doesn’t get much water or sunlight, your old account will limp along, but since it’s not getting fed new cash each month, it’s never going to be healthy. The real benefit to doing nothing is that you’ll forget about this old 401(k) account and never be tempted to cash it out.

2. Rollover 401(k) to your new plan at your new job. This is the option that I’d recommend. Why? Because it’s the simplest. You fill out a simple form and the money, since it’s going from one trustee plan to another, never has to be held in escrow. Once the money is in your new job’s plan, it can really start to grow. You’ll be adding to the fund every month and, with any luck, your new employer matches a percentage of the contribution which makes your money grow that much quicker.

3. Roll the money into an IRA. This is not a bad option. It beats leaving the money in the old account and it certainly beats cashing out the 401(k). That’s never a good idea, by the way. What’s nice about an IRA is that you can divert a little bit of money to it each month, too. So the original amount from your old job gets help in growing as you add an extra $500 or $1,00 each year. The idea of saving $500 a year might sound crazy, but it’s just $40 a month. What’s $40? It’s just about $1.50 a day. So you skip the vending machine snack every afternoon. Your wallet and your waistline will thank you.

If you’re like most people, you tend to put off dealing with money questions. Spending money is easy, too easy. Deciding how to save it, what the best course of action is, that seems harder. I hope, however, that this article has made you see that deciding what to do with that old 401(k) account is a lot easier than you thought.