What to do with a 401k $ after you change jobs?

[Dave Baker]

Footnote: if you do park the money in an IRA temporarily, make it a brand-new IRA ... don't mix any existing IRA moneys or future $2,000-a-year type IRA contributions with the funds you've received from the 401(k) plan.

(If the moneys get mixed, you probably won't have the ability legally to get the 401(k) funds out of the IRA and into the new employer's plan, due to a rule in the tax code.)

[This message has been edited by Dave Baker (edited 03-07-2000).]

[Guest junkyarddawg]

I have some $ in a 401K with my former employer that will be cashed and distributed to me if I don't move it out soon. I am not eligible for 401K at my new job until 6 months. What do I do?

[Guest GregSelf]

Check your new employer's plan. It may allow your rollover contribution even if you're not eligible to defer yet. If it doesn't, then transfer the balance to an IRA. When you become eligible to participate in your new plan, roll the IRA into the plan. Check with your new plan sponsor for specifics.

------------------

[Spencer]

Some banks and financial institutions will set up an IRA for just this purpose - to invest money tax deferred until you're eligible for your company's plan. Ask about a "conduit" IRA.

If you do decide to roll money into an IRA, it must be a "traditional" IRA, not a Roth, SIMPLE or educational IRA.

[Guest]

just in case you are not aware, if you take the distribution in cash, you will end up paying a 10% penalty for early withdrawal.

Nasty, nasty ,nasty. that is one of the main reasons for rolling the money over.

It is possible to rollover the money w/o setting up an IRA as well, but there is a time frame involved. You could take the distribution, which would be reduced by 20% for withholding taxes. You then have 60 days in which to roll the $ over to the plan (or even an IRA. At that time, if you 'divvy up' the amount of withholding, you can make the rollover. At tax time, you would then get credit for the taxes that were withheld on the 'rollover'. just watch out on the timing.

since you said you would be eligible in 6 months, it could very well be that your former employee would delay cutting a check until that date. I'd like to think most companies are reasonable in regards to this. it never hurts to ask.