What can you do with your old 401k? Whether you have visions of exotic vacations, jetting around the world or paying for needed car repairs or cashing out to pay old credit cards, think before you act. This is a common question that comes in various forms. So what can you do?
Answer: Yes, you sure can. But you will pay income taxes and possibly early withdrawal penalties if you are under age 59 1/2. You will receive a 1099 from the plan administrator and have to report distributions as income and pay income taxes as well as an early withdrawal penalty of 10% if you’re under age 59 1/2.
Unlike a pension, you can access your 401(k) account balance when you separate from your employer. So you can take it with you. But note that you can only access that portion of the 401(k) plan account that you have a vested interest in: Your elective contributions – what you contributed from your paycheck – are yours plus the earnings, interest or capital gains; any company match may be subject to a vesting schedule. So if you haven’t been participating in the plan long enough you may lose this portion.
You’re better off rolling the account to an Individual Retirement Account in your name or your new employer’s 401(k) plan. It’s best to do this through a direct “trustee-to-trustee” transfer so you don’t risk getting a check, cashing it and then having to pay the taxes and penalties noted above.
– See more at: BrightScope