If you’re leaving your job and you have a retirement plan (other than a defined benefit (pension) plan), you generally have four options for your account balance:
1. Leave your money in the plan
You may want to keep the balance in your old plan, especially if:
- you like the plan’s investment options,
- the plan has low fees, or
- you want to move the balance to a new employer’s plan later.
If your account balance is less than $5,000, your employer may require you to move it. In this case, consider rolling it over to your new employer’s plan or to an IRA.
2. Rollover to a new employer’s plan
Check if your new employer’s retirement plan allows you to move the balance from your old plan into the new plan. However, you should consider the following:
- Does the new plan have better investment options?
- How do the new plan’s fees compare to the old plan’s?
- Is it better for you to consolidate your retirement savings into one plan so you have fewer accounts to track?
3. Withdraw the balance
You can withdraw your balance by requesting a lump-sum distribution. However, you:
- will likely have to pay income tax on any previously untaxed amount that you receive, and
- may have to pay an additional 10% early distribution tax if you aren’t at least age 55 (59½, if from a SEP or SIMPLE IRA plan). If your withdrawal is from a SIMPLE IRA plan within two years of your first participation in the plan, the additional early distribution tax is 25%.
If you withdraw some or all of your balance, you can still decide to roll it over to a new employer’s plan or to an IRA within 60 days of receiving the distribution.
4. Rollover to an IRA
You can roll over the old plan’s balance to a traditional or a Roth IRA. Most IRAs offer a wide range of low-cost investment options. By rolling over your plan balance to an IRA, you can consolidate all your investments into one account and track them more easily.
If you roll over to a Roth IRA, you must include the untaxed amount in your gross income for the year in which you do the rollover. Withdrawals from a Roth IRA could eventually be tax-free if you meet certain conditions.
How can I roll over the balance to a new plan or an IRA?
There are two ways to move your old plan’s balance to a new plan or to an IRA. You can:
- ask the old plan’s trustee to directly transfer the balance to your new plan or an IRA, or
- request a lump-sum distribution of the balance from the old plan and then deposit it into the new plan or IRA within 60 days.
The old plan usually withholds 20% for federal income taxes from the distributed amount, so unless you make up the withheld amount when you deposit the distribution into the new plan or IRA, you:
- must include the withheld amount in your gross income in the year the distribution was made, and
- may owe an additional early distribution tax on the withheld amount.
If your distribution includes property, you can either roll over the property to the new plan or IRA or sell the property and roll over the proceeds. In either case, you must deposit into the new plan or IRA within 60 days of receiving the distribution.
- Rollovers of Retirement Plan and IRA Distributions
- Rollover chart
- Publication 590-B Distributions Individual Retirement Arrangements (IRAs)
- Retirement And Health Care Coverage...Q&As For Dislocated Workers (U.S. Department of Labor)
- Job Loss - Important Information Workers Need to Know to Protect their Health Coverage and Retirement Benefits (U.S. Department of Labor)