Speak to a financial adviser and research your options before you decide what to do with your 401k money. According to a 2002 Hewitt Associates survey, those who are in their twenties or have less than $5,000 in their 401k are most likely to cash out. Cashing out gives you quick money, but you will lose 20 percent of it to income taxes and 10 percent to early withdrawal fees.
Cameron Huddleston, a contributing editor for Kiplinger.com, advises that you roll over your money into an IRA or your new employer's 401k plan. These two options allow you to avoid taxes and penalties and have a more financially sound retirement. Having all of your money in one place also makes it easier to manage, plus you no longer have to deal with your old employer.
Ask your current employer if they accept rollovers from old 401k plans. Unfortunately, not all companies do. If you current employer does allow rollovers, decide if their investment options are sound. Generally, you want a 401k plan that has many stock, bond and money market options and does not require you to purchase a large amount of company stock.
Research Individual Retirment Account (IRA) options and speak to a financial adviser. IRAs do not have with the same investment restrictions as employer 401k plans. You can open an IRA through a bank, brokerage firm or mutual fund company. If you chose to roll over your money into an IRA, you must first set up an account. Setting up an IRA is free, but some require a minimum investment of $1,000. After the account has been set up, ask your former employer to transfer the money into your new IRA.