New job and old 401k

[lebt2006]

All,
my wife and I are in a 100% chapter 13 plan in Indiana. My wife just got a new job. Her old job still has a 401K she contributed to. What do we do with that 401k? What are we allowed to do is the better question? Can we cash it out to pay a big dent into our plan?

[justbroke]

You should be receiving a notification from the 401(k) custodian about what you want to do. From the few times I changed jobs, they will typically payout the account if it's less than $5K. In any case, you can rollover that distribution to your new employer's account. You could even take it as a distribution and pay the taxes (and the tax penalty if you're not 59.5+ of age).

I recommend that people do a "direct" rollover of the 401(k) as that keeps it out of your hands. Some are tempted to leverage the money for the 60-days you get to rollover. But... when it's that type of rollover when the custodian gives you a check, they'll withhold about 25% for taxes. So to completely roll it over you'd have to come up with that 25%! So, direct rollovers are appropriate when you really want to rollover the entire amount.

My employer had a retirement account and when I left they paid it in a lump sum. I wish I knew that I could have just rolled it to a 401(k) at the new employer. However, I did use most of it to buy my new home, so it wasn't too bad.

[shipo]

If her new company doesn't have a 401K program, or if you don't want to roll the funds into the new plan, you can also roll 401Ks over into a "Regular IRA".