What to do about an existing 401(k) at your previous employer

You may want to consult with a tax professional to make sure that you are making a decision that is best for your unique circumstances.

Here are some options to consider:

Keep your 401(k) with your previous employer

In this instance, you won’t change a thing. Just make sure that you actively monitor your investments in the plan for performance and remain aware of any significant changes that occur.

If you really like your current investment options and are paying a low amount of fees, this might be the right choice for you.

Roll it over to a traditional IRA

This makes sense if you want to roll over your 401(k) and you don’t want a taxable event at this time. If you have an existing traditional IRA, you may be able to consolidate all of your IRAs in one place.

There are plenty of mutual fund companies and brokerages that offer no-load mutual funds and commission-free ETFs, says Greg McBride, CFA, Bankrate chief financial analyst.

“You also want to just make sure that you’re satisfying any account minimums so that you don’t get dinged for an account maintenance fee for having a low balance,” McBride says. “… Index funds will have the lowest expense ratios. So yeah, there’s a way that you can really cut out a lot of the unnecessary fees.”

Depending on the traditional IRA, you may not be able to add to your existing one. So check with your IRA institution first.

If you are in a lower tax bracket now than you think you will be in the future, this strategy may make sense. Some 401(k) plans, however, won’t allow you to directly roll it over to a Roth IRA. If that is the case, you’ll have to roll over the 401(k) into a traditional IRA and then convert it from there to a Roth IRA.

“The letter of the law says it is OK [to roll a 401(k) into a Roth IRA]. But in practice, your 401(k) plan may not allow it,” says Michael Landsberg, CPA/PFS, member of the American Institute of CPA’s Personal Financial Planning Executive Committee.

Money moved into a Roth IRA from a traditional 401(k) has never been taxed before, so it must be included in your gross income for tax purposes.

Roll it over to your new employer’s 401(k)

If your new employer’s 401(k) plan accepts rollovers, this may be a good option if the plan’s expense ratio is lower than your previous employer’s 401(k).

It also might make sense to do this if you like your new employer’s investment options better.

While 401(k) loans are only for extreme emergencies, you may be able to take one out against your previous 401(k) balance – depending on the rules of your employer’s 401(k) – if you move your money over to your new employer’s plan.