Cashing out an IRA or pension When workers leave a job, they often take their money out of a retirement fund. This is a really bad idea because:
1. you have to pay taxes AND a 10% penalty on the money;
2. if you switch jobs often, to have any savings for retirement, you have to piece together many small amounts of money from each job;
3. even a small amount of money which is left until you retire will grow.

If you are sent the check directly (even if you deposit it in another retirement account), you will be charged taxes. Rollover means that one organization sends the money directly to another financial institution. Make sure that you don’t get a check!! If you do, send it back and tell your former company what you want done with the money.

Sometimes workers lose track of their accounts. Make sure you put it somewhere you will not forget about it.

You have choices of what to do with your 401(k) account when you leave a job:

If you have over $5000 in your account, you can:

  • Leave the money in your old employer’s 401(k)
  • Move the money to an Individual Retirement Account (IRA)
  • Move the money to another employer’s 401(k)

If you have $1000 to $5000 in your account, you can:

  • Take the money out (bad idea)
  • Move the money to an Individual Retirement Account (IRA)
  • Move the money to another employer’s 401(k)
  • OR Your boss will leave the money in their 401(k) or make a special IRA for you.

You can open your own IRA at any bank.

If you don’t give your old employer instructions, the money will stay in their 401K (or they can create a special IRA). They have to keep you informed of where your money is. You should receive regular notices.