You get a new job and everything is going smoothly. You set up your direct deposit and your 401(k) contribution with HR and then a few weeks later it dawns on you that your 401(k) from your previous job is just sitting somewhere, and you’re not sure how the account is doing and/or what to do with it. So, what should you do and how do you do it? There are basically three smart options: keep the 401(k) where it’s at, transfer it to your new company’s 401(k) plan or transfer it to an IRA.

If you’re happy with the new 401(k) plan that your new employer offers and your HR department gives you the green light to roll over your old 401(k) into the new one, it’s quite easy. A direct rollover quickly and easily transfers the entire amount over to the new account without taxes or penalty. It’s an easy option that enables you to have to manage and track only one 401(k) account. There are other options for how to handle an old 401(k) though, including transferring the money to an IRA. A few reasons why this may be the best route is that IRA’s offer greater flexibility and more investment options, often at a lower cost.

“I’d say 100 percent of the time, when a person has a choice of staying in a 401(k) or rolling to an IRA, they should roll it over to an IRA. You go from a limited investment venue to an unlimited number of investment opportunities that open up,” says Peter Mallouk, president and chief investment officer of Creative Planning Inc., a wealth management firm out of Leawood, KS.

At Gainplan we would be able to provide better investment advice through an IRA rather than with sticking with a 401(k). Primarily, because it would be a hands-on approach with us managing the money tactically, while helping to manage risk. In addition, there are fees associated with a 401(k) that are not there with an IRA. Better put, an IRA puts you more in control of your money— but which should you choose: traditional or Roth?

The main benefit of a traditional IRA is that your investment is tax-deductible now; you put pre-tax money into an IRA and those contributions are not part of your taxable income. Your contribution to a Roth IRA is money you have already paid taxes on, so you do not pay taxes on a qualified distribution when you withdraw the money later. The idea here is that the taxes you pay now is presumably at a lower rate than when you will withdraw the money— 10, 20, 30 years (or more) down the road.

Lastly, an IRA allows you to have more estate planning options. Upon your death, most likely your 401(k) will be paid in one lump sum to your beneficiary. IRAs have more payout options that may be beneficial to you and your loved ones.

You can also leave the money in your former company’s plan, but be advised that that account is no longer available for you to add to, and you may lose out on getting valuable information about the account from your previous employer, like plan changes, including fees and investment options. Whatever you decide, do not cash out the account— as tempting as it is. You will be both taxed and penalized, and ultimately be taking a step backwards in terms of retirement planning.

Gainplan LLC is a Registered Investment Adviser. This blog is solely for informational purposes and not a solicitation to invest. Advisory services are only offered to clients or prospective clients where Gainplan LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Gainplan LLC unless a client service agreement is in place. Please contact a financial advisory professional before making any investment.