What Should I Do With My 401(k)?

En español | Q. What should I do with my 401(k) plan now that I'm leaving my job for another one? I'm 51.

A. Generally, there are four options:

•  Leave the money with your ex-employer's plan.

•  Move it to your new employer's plan.

• Roll it over to an Individual Retirement Account.

• Cash out.

Your 401(k) is money in your retirement bank. — Photo by Getty Images

See also: Fix your 401(k).

Special rules apply for each choice. Luckily, you usually have some time to decide.

If you have $5,000 or more in the plan, your former employer must let you leave it there until you turn 65, says David Wray, president of the Profit Sharing/401(k) Council of America, which represents employers that offer retirement plans. But your new employer gets to decide whether you can move it there.

If you have between $1,000 and $5,000, your former employer can let you keep the account where it is or help you roll the money into an IRA.

If you have less than $1,000, the employer has those two options and can also just cash out the account and mail you a check.

Whatever you do, try to avoid cashing out. You're going to need all you can get when you finally do retire. If you cash out now, you'll be subject to taxes. And since you are not 59 1/2, you'll have to pay a 10 percent penalty.

Say you've got $50,000 in your 401(k) and pay a federal income tax rate of 25 percent and a state rate of 7 percent. Those taxes plus the 10 percent penalty for early withdrawal will leave you with just $29,000.

Also of interest: When the market slumps, up your 401(k). >>

Carole Fleck is a senior editor at the AARP Bulletin.