Bad Debt

If you have left your previous employer and your 401(k) plan hasn't left with you, this isn't always a bad option. For reasons to be explained later a 401(k) plans that has remained with your previous employer isn't always a bad option. Let's take a look at what you can do with your former 401(k) plan once you cease working with a company.

You've seen the ads: "Don't leave your 401(k) plan behind" or, "Is it time to for you to rollover your 401(k)?" These ads are typically run by IRA companies who would like for you to rollover your 401(k) into one of their plans. If you do, there isn't anything wrong with that option as it can be an investment vehicle that pays you a nice sum of money. It also gives the person on the other end a nice commission.

Granted, if you leave your current place of employment and move onto another company a concern is what to do with your 401(k) plan. Let's explore some options:

Leave the 401(k) plan behind - You don't have to take your 401(k) with you especially if the old 401(k) had some terrific investment options or low administrative fees that were associated with it. As long as your balance is $5,000 or more your former employer doesn't have to make you take your 401(k) with you. If the balance is below that amount then it is your former employer's option whether they permit you to keep your 401(k) with them or issue you a check to take your funds elsewhere.

Rollover to an IRA - An Individual Retirement Account or IRA is another option to consider when taking your 401(k) with you. Simply have your former employer issue you a check and stipulate to them that the funds you are receiving are going into an IRA. If you don't make that specification then they must take tax money out of your disbursement. Shop around for the best IRA deal going and compare between a regular IRA and a ROTH IRA to see which set up works best for you.

Take it to the new company - If your new company offers a 401(k) plan and the investment options are attractive and their administrative fees are low, then consider rolling over the entire 401(k) to the new plan. Even if your new 401(k) isn't quite the bargain as the old plan, consolidating accounts may make it easier for you to track your funds.

Regardless of your decision your 401(k) is too valuable to forget. Keep track of it no matter where you have your funds and how you invest it.