4 options for old 401(k) money

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Dear Dr. Don,
I have changed employers. Should I roll my old 401(k) over to my new employer’s 401(k) or put the money into an IRA? I plan on starting a 401(k) with my new employer but need to know the best place to put my current plan’s money.
— Angie Accumulates

Dear Angie,
You correctly named two of the four choices where you can continue to have your old 401(k) account held in a tax-advantaged account for retirement. The two you didn’t name are:

  • Keeping the money in your previous employer’s 401(k) plan, assuming you have enough money in the account that the employer can’t force you out.
  • Taking the money and converting it into a Roth IRA.

The decision to convert to a Roth IRA should be made after consulting with a tax professional. That’s especially true if you have any of the company’s stock in the plan, because dealing with net unrealized appreciation can dictate how you should move plan assets.

I always lean toward not putting the money with the new employer. Your future 401(k) contributions are going to be limited to the investment choices in its plan. Why limit your past contributions to those same investment choices?

If you don’t put the money with your new employer and you want to move it away from your old employer’s plan, your choices are either a Roth IRA or a traditional IRA. You also have choices as to where you keep the account. The basic choices are a bank account, a brokerage account or investing directly with a mutual fund family.

If you’re not comfortable finding a new home for this money, work with a financial-planning professional to get comfortable. An earlier column, “Financial planner molds retirement plan,” can help you make that decision.

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