Recent data shows that the average American will change careers seven times over the course of his or her working years. And that’s careers, not jobs. This means you are virtually guaranteed to change jobs several times over the course of your career, no matter how stable you think things appear now. This also means that there will be lots and lots of money left behind in old retirement accounts.

Anytime you leave a job after investing money in a 401k, you are faced with the task of deciding what to do with that money. You have several options, which range from leaving money where it is to moving the money into one of several possible accounts. We’ll discuss those options in greater depth later, but first, let’s take a look at the basic process of a 401k rollover.

401k Rollover Rules

The basic steps to doing a 401k rollover are actually fairly simple. It’s the details that make things more difficult.

1) Contact your old employer. A quick phone call will do the trick most of the time. You need to check on a couple of things with them. First, make sure that your 401k is eligible to be transferred. If they aren’t yet aware that your employment has been terminated (it happens all the time with large corporations), then see what needs to be done to make that happen. Once your 401k is ready, get them to send you the rollover paperwork.

2) Contact the company/financial institution that you’re rolling your money over to. You’ve got a few options here as to where you want to send the money, and we’ll cover them below in greater detail. At this point, the important thing is to get the company to send you the necessary paperwork to send them the money.

3) Once you’ve gotten all the paperwork fill it out and send it back in. One thing to take note of is to be sure to check the “direct rollover” box on the paperwork. If you select an option that sends you the money, that will count as an early withdrawal and you’ll be penalized with taxes.

4) Once the paperwork is sent in, you’re done. All of the actual transferring will take place behind the scenes and will be handled by the two financial companies. You won’t have to do anything yourself to actually move the money.

401k Rollover Options

Now that we know the process of a 401k rollover, let’s take a look at what your options are for rolling your money.

The easiest option is to simply do nothing with your 401k. In many cases you can leave your money with your old employer indefinitely, so you can take this route if you want to. The downside to this is that it’s easy to forget that you have the money invested there, and it can become a hassle keeping track of several different retirement accounts.

Another option is to simply withdraw all of the money in your 401k account. This may be tempting, but it is a bad financial decision. You’re going to pay a ton of money in taxes and penalties, and you’ll only net a payment of about 60% of the cash in your account. Stay away from this option.

The next three options are to roll the money in your 401k into a new investment account. You have three possibilities as to where you want to roll it: a new 401k, a mutual fund company, or an investment broker.

If you’ve started a new job and your new employer offers you a 401k, then you can choose to roll the money into that account. This offers the advantage of having all of your retirement money together in one place. The disadvantage of doing this is that your investment options are going to be limited to the specific investments that your employer makes available.

If you want some more investment choices, you can do a 401k rollover to an IRA with a mutual fund company or an investment broker. Investing your money with a broker will give you the most investment options, but that’s not necessarily a good thing if you don’t have some experience with investing. Rolling your money to a mutual fund company is probably the best choice for a lot of people, as it gives a limited but broad range of investment possibilities. In addition, many mutual fund companies offer automatic retirement investment plans, that are based on your personal risk tolerance and the amount of time you have until retirement. All you have to do is plug in your personal data, and the money will be invested and automatically adjusted for you.

Another option available to you is to do a 401k rollover to a Roth IRA. This would also be done with a mutual fund company or a broker, but the advantage is that you would convert your retirement funds into a Roth IRA, which allows for tax-free withdrawals. The question of whether a Traditional IRA or a Roth IRA is better for you is most likely best answered by your tax accountant and financial planner, so if you’re considering this route, be sure and ask for their advice.

Conclusion

If you need to rollover a 401k, let’s boil down all of your options and bottom line it for you. If you want things to be as simple as possible, roll the money into your current 401k. That’s a good way to keep things non-complicated, and provides easy access to all of your money. If you want some help with your investment choices, head to a broker or a financial planner. They handle lots of 401k rollovers, and will be able to guide you through the rollover process as well as help you choose the right investments for your retirement goals.