"When you leave a job, it is usually a smart move to take your 401(k) with you. That does not mean cashing it out, since doing that could trigger taxes and early withdrawal penalties. Instead, it means rolling the money into a new retirement account, either the 401(k) at your next employer or an IRA you open on your own."
"Leaving the funds in an old 401(k) can lead to problems. It is easy to forget about an account you are no longer watching. You also cannot be sure how your previous employer might change the plan in ways that are not ideal for you. Moving the money into a new retirement plan you actively manage is usually the safer choice."
"There are several advantages that Roth IRAs offer compared with traditional IRAs, and many of these benefits become even more valuable the longer your money stays invested. A traditional IRA gives you tax deferred growth, which means your investments can compound without an immediate tax hit. However, once you reach retirement and begin taking withdrawals, every dollar of growth becomes taxable income. This can take a meaningful bite out of the money you worked hard to save."
When leaving employment, moving a 401(k) into a new retirement account—either a new employer's 401(k) or an IRA—is generally advisable to avoid taxes and early-withdrawal penalties. Leaving funds in an old 401(k) risks losing track of the account and exposure to undesirable plan changes by the former employer. Opening an IRA or converting to a Roth IRA is a common option when no new employer plan exists. Roth IRAs require after-tax contributions but allow tax-free growth and tax-free withdrawals in retirement, while traditional IRAs provide tax-deferred growth with taxable withdrawals. Conversion decisions require careful tax and timing considerations.
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