With balances greater than $5,000, 401k participants can leave their account with their previous employer.
With a lump sum distribution an IRS-mandated 20% tax withholding charge is levied. Participants under 59 1/2 will also be levied a 10% early-withdrawal penalty. For all participants, the 20% tax will be counted against income tax payable at year's end while the 10% will not.
Rollover Into a New Company's 401K
Rolling over a 401k plan into a new company's 401k plan results in no taxes or penalties levied by the IRS.
Rollover Into a Regular IRA
Funds can be rolled into a regular IRA without any tax implications as long as they are moved within 60 days.
Rollover into a Roth IRA
As 401k money is pretax money and Roth IRAs contain after-tax funds, a participant must pay taxes on the 401k money to comply with IRS rules.
Rollover Into a Self-Directed IRA
This option allows investments in financial instruments such as commodities, real estate and tax liens. The 60-day rule also applies.