One of the benefits that many of us have by working for a company is access to a 401(k) retirement plan. Two features make 401(k)s beneficial, as compared to a regular IRA:
While these are great benefits, you no longer receive these advantages once you leave your employer. After you separate from your employer, you have several options:
- Cash out – don’t do it! A 10% penalty, plus income tax on monies withdrawn, along with the loss of tax-deferred compounding, makes this the worst option of the bunch.
- Leave it where it is – other than being easy, there are no real positives of this option. You are limited to invest in only the options granted by your former employer.
- Roll it into your new 401(k) plan – your money will again be handcuffed to the rules and investment options set forth by your new employer.
- Roll it into an IRA – retain the same tax advantages of your 401(k), plus obtain full control over how you want to invest your nest egg.