A lot of people ask the question what they should do with a retirement account at an old employer.
When you sign up for a 401k at a new company, they allow you to move money from old company 401ks into the new company 401k.
Don’t do it.
The reason they do this is because it’s good for them, not because it’s good for you.
You may also get the really horrible idea to sell everything in the 401k and take the amount in cash.
Don’t do it.
You will have to pay really horrible amounts of tax if you do that. It’s not worth it.
These are retirement accounts. Don’t touch the money until you retire.
What You Should Do Instead
Contact an investment company with low fees like Scottrade and setup a traditional IRA account. Have the employer transfer the money from the old 401k into your IRA account. If you have a Roth 401k at work you will have to have the investment company setup a Roth 401k. As long as you do it Roth to Roth or non-Roth to non-Roth, you are fine.
Traditional IRA accounts at these investment companies tend to be a lot better deal than 401ks are.
Firstly, they tend to have a lot more investment options. Pretty much anything you can invest in is there in an IRA. Not so with a 401k. 401ks almost always have many thousands of times less investment options. You are lucky if you get 20 options in a 401k and there are more than 2000 individual companies with stocks out there. There are at least as many more funds of different types.
Secondly, the IRAs usually have much lower fees. Most of them have no yearly fee of any kind. The fee for trading is usually pretty low too. For Scottrade it’s $7 per trade.
There is almost nothing you can do better in a 401k than in an IRA. An IRA is as close as it gets to a strict upgrade out there.
Funding an IRA is also more flexible. You can put after-tax money into it from your account and then at tax time claim it on your tax return and get a lot lower of a tax bill. You can possibly do this and get a lot of money back. You don’t have to take a set amount per check out or anything like that, you can just put the whole amount in all at once if you want to. However your budge allows is fine with an IRA.
Mind you, you are investing $1 to save probably between 15 and 25 cents per on your taxes. That being said, it’s good to put money aside for retirement anyway and you might as well get paid to do it. It’s like matching government contributions, in a way.