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I think this is the right board for this question.

My 22-year-old DS is most likely changing jobs soon, and so will have a very small amount of money in his 401k since he just became eligible and started contributing in August. Since the amount in the 401k is so small, I expect the plan will automatically send him a check for that money. He makes very little, and so is in the lowest tax bracket.

What should he do with that 401k money? If they send it to him as a distribution, will he only pay taxes on it, or is there also a penalty? If a penalty, then could he just roll that over to an IRA to avoid the penalty? If no penalty, I would think that paying the taxes on it now and putting it in his Roth IRA would be a better choice for him.

What should I advise him to do, or what else should be considered as he makes this decision?
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