What are your options for an old 401(k)?

When you leave an employer, the retirement account you built there does not have to stay exactly as it is, but it also does not have to move. Each option, staying, moving to a new plan, rolling to an IRA, or taking a distribution, has different rules around fees, investment choices, creditor protection, and taxes. What may work well for one person's circumstances can be a poor fit for another's, depending on age, account balance, and overall retirement picture.

Many plans allow former employees to keep a balance in place, usually if it is above a minimum threshold set by the plan.

• What are the plan's ongoing administrative and fund expense ratios?
• Can you still change investment elections after you leave the employer?
• Does the plan allow partial withdrawals, or only a full distribution?
• What happens to the account if the plan terminates or merges?

If your new employer's plan accepts rollovers, consolidating accounts can simplify recordkeeping. Whether this makes sense can vary based on the new plan's investment lineup and costs compared to your other options.

• Does the new plan accept rollovers, and is there a waiting period?
• How do the new plan's fees and fund menu compare with an IRA?
• Does the new plan offer features (like loans) you want to preserve?

A rollover to a traditional or Roth IRA can expand investment choice and may consolidate multiple old accounts in one place. A rollover done incorrectly can trigger unintended tax consequences, so direct (trustee-to-trustee) transfers are generally used to avoid withholding issues.

• Will this be a direct rollover, or will you receive a check first?
• What ongoing advisory or account fees apply at the new custodian?
• Does moving to an IRA affect creditor protection in your state?
• If considering a Roth conversion, have you reviewed the tax impact for this year?

Cashing out an old plan is generally the least tax-efficient option for most people, since the distribution can be subject to ordinary income tax and, if you are under 59½, an additional early withdrawal penalty may apply depending on your circumstances. Some people still choose this route for specific short-term needs, but it is worth understanding the full cost before deciding.

• What am I giving up or gaining in terms of fees, investment options, and protections?
• Does this decision affect my overall retirement income strategy?
• Am I rolling over for the right reasons, or simply because it feels simpler?
• Have I reviewed the plan documents, not just a summary?