Many people today change their jobs or careers 3-4 times during their working years. This can have a significant impact on their retirement savings as well as the lifestyle they hope to enjoy in retirement. Whether you are contemplating retirement, in between jobs or starting a new one it is imperative to know and understand your retirement plan distribution options. Regardless of whether you have a 401k, 403b or other retirement plan, making the proper decision is critical to your financial well being. The following are the options available to you:
Option 1) Take the Money
Although tempting, for most of us this is the worst option. First the plan administrator is required to withhold 20% for federal taxes. Second the money you receive is taxed as ordinary income therefore, if you are in a higher tax bracket, you may owe additional taxes when you file your return. Lastly, to add insult to injury, if you are younger than 59 1/2 you may be subject to a 10% IRS penalty for premature withdrawal.
This option can dramatically affect your retirement savings.
Option 2) Leave Your Money in Your Previous Employers Retirement Plan
This is clearly a better choice than your first option as you wont be taxed or penalized. However there are some disadvantages. Most employer plans limit your investment choices. Many individuals have more than one retirement plan from previous employers making it more difficult to manage. Subsequently, this can lead to poor investment performance, duplication of investments and higher management fees.
Option 3) Transfer the Money to Your New Employers Retirement Plan
For some individuals this may be a better choice than option 2 as it avoids some of the pitfalls previously discussed. Unfortunately you are still limited to the investment choices that your new plan offers.
Depending on the choices, this may be a major drawback.
Option 4) Transfer the Money into a New IRA (Rollover)
For most people this is the best option available for the following reasons:
Many people today change their jobs or careers 3-4 times during their working years. This can have a significant impact on their retirement savings as well as the lifestyle they hope to enjoy in retirement. Whether you are contemplating retirement, in between jobs or starting a new one it is imperative to know and understand your retirement plan distribution options. Regardless of whether you have a 401k, 403b or other retirement plan, making the proper decision is critical to your financial well being. The following are the options available to you: 
