If you are changing or leaving your job, don’t forget to consider your 401(k) and what options you have with that money.

What’s the next step for your 401(k) money? You have three choices, and one of them may suit you better than the others.

You could just leave the money in the 401(k) plan. Not all employers allow this, but some do, and some 401(k) plan participants make this choice. The upside is that your money is still invested with potential for further tax-deferred growth. The downside is that your range of investment options may be more limited than you would prefer.

You could cash out. You pay a price for quick access to your money: the IRS defines a cash distribution out of a 401(k) as taxable income. If you cash out before age 59½, you face a 10% early withdrawal penalty as well. The distribution is also subject to state taxes. Another reality: that money won’t get any further tax-deferred growth if it sits in your bank account. The longer you have had your 401(k), the more critical tax-deferred growth and compounding become. ¹

You could roll it over to an IRA. This is the move many make, and for good reason. A 401(k) rollover to a Roth or traditional IRA preserves the potential for those assets to grow tax-deferred or even tax-free. You also get to choose from a vast range of investment options – a perk that your 401(k) plan may not have offered.

Look into a 401(k) rollover as you leave your job. Turn to a financial professional who can help you arrange it. Call me or email me today.

1 – irs.gov/taxtopics/tc558.html [2/27/14]