Don't Forget Your 401(k)

If you're investing in a new job this fall, you'll need to know a few things about your retirement account, specifically, what to do with the money you've saved at your old job. Ray Hennessey, editor of Smartmoney.com, offers some valuable advice.

When people change jobs, many forget to roll over their 401(k) accounts to the one offered by their new employer. "What happens is, you have a big chunk of your nest egg that often goes left to the side," Hennessey explains. "It's one of the most important financial decisions you can make on how to roll over these assets." Unfortunately, it's not easy to roll over you 401(k), but there are some things to make it a bit easier.

First, you want to transfer your 401(k) directly to an individual retirement account or the new 401(k) at your new job. "You never want this retirement plan to give you a check in your own name," Hennessey warns. "What happens is, your previous employer will withhold 20 percent for taxes and you could be assessed up to ten percent penalty fee."

Secondly, make sure the transfer happens within 60 days. "This is tricky too because it's not 60 business days," Hennessey explains, "this counts Saturdays, Sundays, even holidays." Because of this, and how slow these kinds of transactions can be, the sooner it is done, the better.

Finally - and this is very important - what you take out of your old 401(k) must go into your new plan. "If you have ten percent cash in your previous 401(k) that you want to roll into an IRA, it's got to be 10 percent cash," explains Hennessey. "You can't take stock or cash and put it aside." If you don't follow this tip, you will be taxed on what comes out.

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by Jenn Eaker