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As if you don’t already have enough to think about when changing jobs, there’s often one more important decision to make these days: What should you do with the money you’ve accumulated in your former employer’s 401(k) or 403(b) retirement plan? You can:

  1. Leave the money where it’s at.

  2. Roll it into an Individual Retirement Account (IRA).

  3. Roll it into your new employer’s plan (if possible).

  4. Take the money in cash.

You can rule out #4 as your worst choice. If you cash out a 401(k) plan, you’ll owe Federal and likely state income taxes, and a 10% penalty if you’re under age 59-1/2. Plus, let’s face it, you’ll probably spend it instead of saving it for retirement, as intended. 

It’s not as easy to choose from #1–3. Your best choice depends on several ideals: 

Ideal simplicity. If you’ve held several jobs and accumulated several retirement plan accounts, you can more easily track and manage all your assets by consolidating them into a single retirement account – either an IRA or your new employer’s 401(k). 

Ideal costs. Some employer plans may have the purchasing power to negotiate lower overall fees than you can command in a personal IRA. 

Ideal investing. Rolling into an IRA should offer far more investment opportunities than you’d find in most 401(k)/403(b) plans’ more limited menus. However, if your former or new employer’s plan offers solid investments, it could still be in your best interests to make use of them … 

Ideal portfolio management. Some employers hire professional investment managers to build model portfolios or managed accounts; they may even offer individual advice – at no additional cost to you. You may be giving up too much if you move from an employer’s plan with low- or no-cost professional management to an IRA where you must hire an advisor or go it alone. 

In summary, before you rush to roll your assets out of a former employer’s 401(k), know what you’re leaving behind. Your employment opportunities may be better off elsewhere, but your retirement assets may or may not need to travel along with you. 

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