Posted on June 01, 2005 at 16:40:39:
Leaving a job with money in the retirement plan? Rolling it over into an IRA is the smart way to go—so much so that companies that require departing employees to cash out of plans with balances of $1,000 to $5,000 must now move the funds directly to an IRA.
A thousand here, a thousand there, may not seem much, but over the years—with the help of tax-deferred compounding—it can add up to a nice chunk of change. Money taken out as cash is not only taxed but, if the employee is under 55, subject to a 10 percent penalty. Best bet is to move money in a direct trustee-to-trustee transfer.
Leave your money in an employer’s plan? Fees may be high and investment choices limited. You’re better off in an IRA. For ease in record-keeping, you can combine rollovers into one account.
Note: if your plan includes some company stock, a partial rollover may be better. Appreciated stock taken out of the plan is taxed only on its value when contributed to your account.