The other advisors have answered your question quite well.
I just want to reiterate what others have already said and add a little advice. It would be wise to call the plan administrator and ask what administration fees you will be paying once you leave. If the fees aren’t considerable and the investment options available to you aren’t available in a Rollover IRA or your new employer’s plan, it may not make sense to do a trustee-to-trustee transfer or transfer your 401(k) to your new employer. It really depends on what your plan is offering. It’s rare, but some plans offer better investments that carry lower expense ratios than ETFs you could find at a different custodian.
One aspect that wasn’t mentioned is that if your 401(k) balance is below $5,000, your former company could force you to cash out. If this is the case, make sure to tell your former employer who to write the check to for a transfer (either your new employer’s 401(k) plan or IRA trustee). If they make the check out to you, 20% will be withheld for taxes. You will need to replace the amount withheld within 60 days or you will be subject to income tax plus a 10% early withdrawal penalty.
Depending on the plan, you may be able keep your existing 401k balances with your former employer. If you are working for another company and they have a 401k plan, you can roll it over to that plan. Make sure you complete the rollover within 60 days after your separation date. If you are unemployed, you still have the option of rolling your 401k into an IRA. Financial firms such as TD Ameritrade, Fidelity, Vanguard and Charles Schwab are options and offer a number of mutual and exchange traded funds to choose from.
Juan - To maintain the tax deferred status of the money, you either can leave the 401k account there or rollover the balance to an IRA. You did not provide much detail, but I would suggest if you have a statement from the plan vendor you call them and ask them what options are available to you. While there are general rules to a 401k plan, there are also specific rules that a plan sponsor (your former employer) can set up (i.e., they may force you out of the plan once you terminate employment). Hence, why I would call the vendor and discuss your options. Good luck - Marcus
It looks like most of the other advisors have nailed the specifics of the question and I agree with all of them.
I do want to add a bit of planning advice. IF you choose to leave your 401k at your previous employer, you can access those funds - without the 10% tax penalty associated with early withdrawals from these types of plans - as early as AGE 55. Most people associate age 59 and 1/2 with 401(k) and IRA withdrawals - and this is correct. However - if you are no longer working for an employer, and have left your 401k there - then those assets are available earlier.
This is an important planning tip that might cause you to rethink the IRA rollovers mentioned above. For example, if you should get laid off and unable to find work after age 55 but before age 59 and 1/2, then these assets are available to you for your spending and lifestyle needs.
I've run across a number of people in this soft economy who regretted rolling their 401k to an IRA and losing this important flexibility.
Jon Castle http://www.WealthGuards.com
If you're offered the option of keeping your 401k at your old employer or rolling it over to your new employer, then make sure that you check out the administration fees of each before making the decision. It may make sense to keep the money in the old 401k.
I generally think it's wiser to just roll it into your IRA. That way, you're not limited to the number of investment choices you can make, as is often the case with a 401k. Why be forced into a limited menu of choices including your old employer's stock, and a few underperforming, actively managed funds when you can invest in the whole universe of choices through an IRA?
When you do the rollover, make sure that you do a trustee-to-trustee transfer, meaning that it goes from one custodian (the old 401k) to the new custodian (the new 401k or your IRA). If you don't, then the old 401k custodian will withhold 20%, and it's a pain in the rear to get it all straightened out, not to mention potentially exposing you to fees and taxes if you don't do it correctly. Rollovers happen all the time, so it's likely to not be a problem, but it's something you need to be aware of to ensure it doesn't happen.
Juan, There are several good recomendations here, and so pardon me if I am redundant.
1. In all likelyhood, you would save money if you roll the money into a rollover IRA at Vanguard, for example. The fees and expenses, even at a low cost 401(k) plan will likely be near 1% or more, unless the employer is paying the fees (not usually the case we have found). 2. I would suggest that you open an account where you can buy Index ETF's (a brokerage account).
3. The suggestion about doing a "trustee to trustee transfer" if possible is a good one. You can do any necessary trades on the Rollover IRA side - this will also keep you in the market (good or bad it is better to have diversified market exposure), since it is difficult to time these transfers. In the alternative, have the funds wired from one account to the other and reduce the chance of a lost check or lost opportunity. 4. Once the money reaches Vanguard or Fidelity, or Schwab, etc., diversify the assets. If you don't have any idea how to invest the money use one of their target date funds, or use one of these as a model for building your own portfolio.