Retirement accounts have ungone fundamental changes over the last 25 years. Historically companies promised a pension to long time loyal employees. Unfortunately there have been too many company failures and employees have lost their pension plans.
The popular vehicle of choice, is the 401(k) plan. It allows you to set aside pre-tax dollars of your own until you retire and most companies participate by matching your contribution. Companies are required to place the money in a trust which means that if the company should fail, your money is protected.
Each company allows you to invest money within your 401(k) in different ways with different degrees of risk.
The money coming from your paycheck is 100% yours and vested immediately. The company contributions usually aren't totally vested until after 5 years.
If you leave a company (i.e. move on), the 401(k) belongs to you. Every company must write a master plan that determines how your 401(k) plan is handled should you leave. Some companies will allow you to remain in their
401(k) plan even after you leave but no further contributions can be made to the plan. Why would you remain in an old plan? Usually because your money has been invested in really good options and you are happy to leave it where it is. Most companies force you to move your 401(k) somewhere else because they don't want to have any administrative fees in managing your money. So plan on having to move your 401(k).
The best option is to move your 401(k) to an IRA (Individual Retirement Account) administered by a bank, brokerage or mutual fund family. You can transfer without every taking posession of the money. If you take the money from the 401(k) yourself and transfer it to an IRA, you have 60 days to complete the transaction. Don't do that! If you fail to get the money transfered properly in 60 days, you pay a 10% penalty to Uncle Same and you pay all federal and state taxes on the total sum. Once your money is transfered to an IRA, you decide how the money is invested. Some people are not comfortable making investment decisions for their IRA but there are some real simple options. Contact your free financial advisor to get some ideas.
Another option is to roll your 401(k) of the "old" company into the 401(k) plan of the "new" company. Some companies allow this option, some do not. Again the reason for rolling the money into a new company plan is they give you investment options that you perceive as really good and you feel comfortable doing it.
Every situation is different Grasshoppers but the Queen of Wisconsin Vision and the Princess of Minneapolis Web Designs both face decisions.
Unless there were truly exceptionally difficult personal situations, the option of cashing out the money should be avoided. My personal choice is a rollover to an IRA run by a reputable mutual fund company.
It is your money. You worked hard for it. Don't lose control of it.
Love,
Dad