How to Decide If You Should Rollover Your 401K

When people loss jobs or changing jobs, they must make a decision on their 401K.  Generally, there are three options available.  First one is to cash out.  You can withdraw your entire balance.  You will have to include it to your income and pay 10% penalty if you are not 59 ½.  This is the worst option, and you should only take it when you absolutely need the money.  Second option is to leave it with the current 401K plan if your account balance is over the cash-out limit, $1000.  The third option is to rollover to an IRA or your new 401K plan.  There are a few aspects that you must review to decide if you should rollover your 401K plan.

401K plans vs. IRAs.  The 401K plans generally cost a little bit more then the IRAs.  It costs money to administer or to run a 401K plan.  Some plans will charge a fee to participants, and some will have a layer of fee on investments in additional the regular expenses.  The 401K plans offer limited investment options, but you can have whatever you want in your IRA.  However, there are no transaction fee to get in an out of investments in 401K plans if you can avoid the redemption fees that some investment charges.  If you trade stocks in your IRA account, you will pay trading fee.  The IRA with no load and no trading fee mutual funds, there will be more restrictions to get in an out. 

Your old 401K vs. your new 401K.  Generally, it is better to consolidate your 401K.  However, you have to look at the investment options, fees, trading restrictions, service and etc.

To summarize, if you are a buy and hold investor who will maintain a diversified portfolio and just rebalance from time to time, you are better of to roll your 401K to a no load and low fee with proven track record mutual fund Company, such as Vanguard and T Rowe Price.  If you are an investor who would like to take advantage of the market movements and adopting my 401K trading strategy, you should just leave the funds in 401K.  You have to compare your old and new 401Ks to take advantage what they offer.