With people living longer, having enough money for retirement has become even more important. If you have your money in a 401K but leave your job, you do not want to lose the funds in your 401K. You can cash out the 401K, but that typically is the worst option due to the penalties and tax payments. You have a few options that allow you to not only keep that money, but also continue to invest it to ensure you will have ample funds when it comes time to retire: continue to use the current plan or move it to another qualified retirement account, which is known as a 401K rollover.

You have several rollover options, and the best will depend on your age, retirement plans, tax bracket, income, and other financial factors. Rolling over can help to preserve the tax status of your retirement fund, but you want to ensure you do it the way that benefits you the most. When you do rollover the money, be sure to use a trustee-to-trustee transfer or a direct transfer to save you from being taxed. Each financial institution offers various types of retirement accounts, but there are four basic categories of rollover options.

Traditional IRA

A traditional IRA typically has lower associated fees and more options for investments than 401Ks. This creates the ability to tailor the account to your particular needs and risk tolerance. It is the best option if you have several 401K accounts, or if a former employer holds your 401K account. One of the biggest influences on whether to choose a traditional IRA is your age because of the guidelines for the contribution and withdrawal of money.

Roth IRA

A Roth IRA differs from a traditional IRA because the funds and interest remain tax-free when withdrawn, as long as you meet certain requirements. The funds are taxed before they enter the Roth IRA, because the money contributed is done so after-taxes. When deciding whether a Roth IRA is the right option, you should consider your tax bracket to see if paying the taxes on the funds during the rollover is financially worth it. If you are in a lower tax bracket, than a Roth IRA can be a beneficial option.

Rollover to the New Employer’s 401K

If your new employer also has a 401K plan, you can rollover the funds from your old 401K to the new one. This simplifies your retirement accounts and can increase the yield. It also often presents the ability to streamline specifications on the various strategies for investment. Before deciding upon this option, you should read through the conditions of the 401K. You also should consider how long you plan to stay with the new company, because you will find yourself with the same problem if or when you change employers again.

Pension Plan

Depending on your new employer, you might also have the option to rollover the funds to a pension-type plan. You want to make sure that the pension plan has the same tax purpose as your old 401K. If it does not, then you should choose one of the other options. If you do choose to rollover to a pension plan, you should discuss the process with a financial professional to avoid certain problems, including extra fees and tax penalties.