Job switches and your 401(k)

Q: What’s the best option with my old retirement plan?

A: When it comes to your old 401(k), there are four options that may be available to you: You can leave your account alone, roll it into an IRA, roll it into your new employer’s plan, or cash out.

My top recommendation is to roll the account into an IRA. This is usually a simple process, and its biggest benefit is it offers you more investment choices. Unlike a 401(k) plan, which probably has a selection of a few dozen investment funds at most, with a rollover IRA you can invest in virtually any stock, bond or mu- tual fund you want.

On the other hand, there’s nothing wrong with keeping your 401(k) on autopilot if you don’t have the time or desire to research and select your own investments. In fact, if that’s the case, I encourage you to either leave your 401(k) where it is or roll it into your new employer’s retirement plan if that’s an option. Generally, the smartest move is to evaluate the fees charged by the investment funds you’d pick in each plan, and go with the plan that offers the lower-cost options.

Finally, under (almost) no circumstances is cashing out your 401(k) a smart choice. Not only will the money be considered taxable income, but you’ll get hit with an additional 10% penalty from the IRS unless you qualify for an exception. Worse yet, you’ll be robbing your retirement.