(I am 25, so retirement is far far away, but at the same time, small decisions now can have major impact later :-)

I had a 401k plan with my previous employer which has about $10k in it. I have just become qualified to start participating in the 401k equivalent plan with my current employer. Now I need to decide among the following courses of action:

1) Roll over 100% of the previous 401k to my current employer's 401k
2) Roll over 100% of the previous 401k to an IRA
3) Leave it with the previous employer

Here are the plusses and minuses as I see it. I'd be grateful if you could point out anything I have wrong or anything I have missed:

(1) Roll-over to 401k is better because:
I can borrow against it for my first home.
I can borrow against it for personal emergencies.
(2) Roll-over to IRA is better because:
I have control over how the money is invested.
? - I assume this will be a Traditional IRA that I convert into?
(3) Don't even know if this is possible.

Thanks...

[[ (I am 25, so retirement is far far away, but at the same time, small decisions now
can have major impact later :-)]]

Okey Dokey...

[[ I had a 401k plan with my previous employer which has about $10k in it. I have
just become qualified to start participating in the 401k equivalent plan with my
current employer. Now I need to decide among the following courses of action:

1) Roll over 100% of the previous 401k to my current employer's 401k
2) Roll over 100% of the previous 401k to an IRA
3) Leave it with the previous employer]]

Right...those are basically your options.

[[ Here are the plusses and minuses as I see it. I'd be grateful if you could point out
anything I have wrong or anything I have missed:

(1) Roll-over to 401k is better because:
I can borrow against it for my first home.
I can borrow against it for personal emergencies.]]

But you'll be stuck with the crappy mutual fund investments provided by your 401k administrator. Remember that in your 401k you can't invest in individual stocks. My experience with my clients has been that the ability to control you own funds far outweighs the borrowing issues.

[[ (2) Roll-over to IRA is better because:
I have control over how the money is invested.
? - I assume this will be a Traditional IRA that I convert into?]]

Right...it'll be a Rollover IRA...a traditional IRA. There will be no taxes or penalties to pay when you make this conversion. And then, if you deem it advisable, you can convert this IRA to a Roth IRA and potentiall earn TAX FREE income. You can learn more about the Roth IRA in my series of posts in the Taxes FAQ area. Check it out.

[[ (3) Don't even know if this is possible.]]

Check with your previous employer 401k administrator. But in my humble opinion, this would be the WORST of all possible decisions. If you want to keep your 401k alive, you might as well transfer it to your new employer if nothing else.

Hope this helps...
TMF Taxes
Roy

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[[ I had a 401k plan with my previous employer which has about $10k in it. I have
just become qualified to start participating in the 401k equivalent plan with my
current employer. Now I need to decide among the following courses of action:

1) Roll over 100% of the previous 401k to my current employer's 401k
2) Roll over 100% of the previous 401k to an IRA
3) Leave it with the previous employer]]<<<<

Then Pixie replied (to option #3)

Check with your previous employer 401k administrator. But in my humble opinion, this would be
the WORST of all possible decisions. If you want to keep your 401k alive, you might as well
transfer it to your new employer if nothing else. <<
-------------------------------------------------
And I offer this opinion, Why not roll your 401k from your previous employer to a "conduit ira" and don't co-mingle any other money with it thereby leaving the option to roll to the new employer's plan a possibility in the future if you chose to do so. This way offers the most flexibility, IMHO. Even if you like the choices inside the new employers plan chances are you can get the same mutual fund with the ira. Bryan

[[And I offer this opinion, Why not roll your 401k from your previous employer to
a "conduit ira" and don't co-mingle any other money with it thereby leaving the
option to roll to the new employer's plan a possibility in the future if you chose to
do so. This way offers the most flexibility, IMHO. Even if you like the choices
inside the new employers plan chances are you can get the same mutual fund
with the ira. Bryan]]

Sorry...I guess I didn't make myself clear. Option #2 was esentially what you are describing here.

Thanks for the clarification...
TMF Taxes
Roy

Food for thought. I was in a similar situation and I chose your third option for me right now. The reason being that my previous employer contributed to my 401(k) but you had to have 5 years employment before you were fully vested with the company. I wasn't there 5 years. I decided to leave my money in their plan. That way, at least the money they contributed can earn money for me. However, I like the idea of rolling this money into IRA.

Ryan Draughn