If you change jobs you may have an important decision to make – what to do with your 401(k) plan. You’ll have several choices. Unfortunately, the easiest choice is the worst choice: that is, to take a distribution from the old plan and put it in the bank. It may be tempting, because who couldn’t use some extra cash. But if you do, you’ll owe taxes on the balance and usually a 10% penalty as well. You’ll lose the benefits of future tax-deferred growth on your savings. And if you spend the money, you’ll have to start from scratch in saving for retirement. Instead, consider three options.

• Ask your new employer whether you can roll your balance into the new company’s plan. If you can, arrange a direct transfer between plans. You may have to complete a probationary period before you can join your new company’s plan.
• Explore whether you can leave your balance in the old plan, at least for a while. That removes the pressure for an immediate decision.
• Roll over your balance into an individual retirement account (IRA). This avoids immediate taxes and lets your savings continue to grow tax-deferred. It also gives you maximum flexibility for future investments. You even have the flexibility to later convert into a Roth IRA. Be sure to ask for a “trustee-to-trustee” transfer to avoid any short-term tax risk.

A word of caution: If part of your account is invested in company stock, get details on the tax issues before you withdraw or rollover funds.

The bottom line: Do all you can to keep your savings in a tax-favored account. You’ll be glad you did when you reach retirement age. Please call our office if you’re facing this situation. We’ll be happy to advise you on your options.