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or continue in a 401k plan even though his new employer doesn't offer it?

No. Your father can contribue to a 401(k) only through payroll deduction and then only if his employer offers that 401(k) plan. Does the new employer offer any other plan, such as some flavor of an IRA? (I haven't needed that info, so I don't know if it is called a SIMPLE IRA or a SEP IRA that a small employer can offer.)

Your father can contribute to a Traditional IRA (but he might not be able to deduct contributions to it depending on whether or not he could participate in an employer plan any time during the calendar year and his income) or, if within the contribution limits, can contribute to a Roth IRA, possibly also contribute to his spouse's IRA or Roth IRA. Total contribution to a given person's Traditional IRA or Roth IRA or any combination thereof, there are contribution limits, e.g., current year it is $2,000 total, next year it is $3,000 but with an extra $500 if the person is 50 or older. (From the home page, go into "Retirement" and then "All About IRAs" for more information on all of this.)

Additional retirement options include: investing in individual stocks one can hold for the long term, "tax efficient" or "tax managed" mutual funds, other mutual funds that tend to have low turnover (such as a major index fund, such as an S&P500 index fund or a Total Stock Market fund), or an (unqualified) annuity. (Here on annuities are frowned upon because they generally have high expenses when one considers both M&E fees and investment advisory fees, plus the disadvantage of turning the stock appreciation gains, which would have been a taxable account's long-term capital gains, into the annuities' ordinary income when withdrawn and thus taxed at a higher rate, but if this is for 20 years or more the avoidance of ongoing tax obligations may make up for this disadvantage, but probably not for high expenses--so shop carefully if looking at annuities.)

What can he do with this [401(k)] money? Can he put it into a IRA/Roth, Mutual Funds ...

1. If he is happy with the investment choices and expenses with the old employer's 401(k) and if he is allowed to keep his money there (many don't allow this if the amount is under $5,000), he can keep his money there. Or ...

2. He can keep his money at his old 401(k) (if permitted by the plan) and, when he gets a new employer that does offer a 401(k) (or, after January 1, 2002, offers a 403(b) or a TSP), and if the new employer's plan allows for roll-ins, he can roll the old 401(k) into that new plan. Or ...

3. He can roll the old 401(k) into a "rollover IRA" (a Traditional IRA that is funded exclusively from money rolled over from a 401(k)). If possible, make arrangements with the "rollover IRA" custodian and start the paperwork to do a direct rollover from the 401(k) custodian to the IRA custodian so the full amount will be transferred. (If your father takes possession of the money, it is likely that 20% will be withheld towards taxes and that 20% will have to be made up from other sources if he wants the total amount to be in the "rollover IRA", and then that extra, i.e., the amount withheld, can be refunded when taxes are filed.)

3.a. The money in the "rollover IRA" can be invested in stocks (if the IRA custodian is a brokerage), in mutual funds (if the IRA custodian is a fund family or a brokerage that handles mutual funds), or a number of other instruments (e.g., CDs if the IRA custodian handles CDs, such as a credit union, a bank, or a brokerage that deals with brokered CDs).

3.b. The money in the "rollover IRA" can later be rolled into the next employer's 401(k) (provided that the next employer offers a 401(k) and allows money to be rolled into it from a former 401(k) or from an IRA funded exclusively from 401(k) money). After January 1, 2002, other types of emplyer plans (such as 403(b)) can receive that money if they allow such roll-ins.

3.c. The money in the "rollover IRA" can be converted to Roth IRA. Many IRA custodians will allow seemless rollover 401(k) to rollover IRA and conversion into Roth IRA, even though the paperwork filed with the IRS would show two distinct steps. Note: conversion has tax implications: the dollar value converted to Roth has to be declared and will be taxed at ordinary income tax rates, so taxes would have to be paid when one files one's tax returns, preferably paid from some other source (such as regular savings or ongoing wages/payroll withholding).

4. He can take the money out of the 401(k) and 20% will be withheld for taxes. But when he files his tax returns, he would end up paying ordinary income tax (including the possibility of being bumped into a higher income tax bracket) plus 10% penalty plus any state tax and penalty. That 20% withholding will count towards tax already paid (just like payroll withholding tax counts towards taxes already paid).

Of the choices of what to do with the 401(k) money, only choices 3.c and 4 have tax considerations. Note: there is the possibility that if the amount in the 401(k) is under $5,000, the 401(k) custodian may force choice 4 if other arrangements had not been made.
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