Alternatives to rolling over a 401(k) retirement plan into an Individual Retirement Account or a new employer's 401(k) plan are to withdraw the money in a lump sum or leave the funds in the existing plan and allow it to grow, explains Kiplinger. Early withdrawal of a lump sum is usually not a good idea, however, because of the resulting taxes and penalties.
Only employees who are over 55 years of age when they leave an employer may withdraw a lump sum without incurring a penalty, as of 2015, says Kiplinger. The withdrawal is then taxed as income. Leaving funds in the employer's 401(k) plan may be beneficial if the plan has lower fees and better investment options than the alternative, according to Forbes.
Consumers pay no taxes when a 401(k) plan is directly rolled over to an IRA or another 401(k) plan, according to Kiplinger. Unlike IRAs, 401(k) plans are protected against bankruptcy, and often feature the ability to borrow against the balance. On the other hand, IRAs offer flexibility that 401(k) plans do not, such as the ability to make a penalty-free withdrawal for a first time home purchase or college tuition. Forbes advises that consumers should consider their plans before deciding to consolidate all retirement funds into one 401(k) plan.