If you leave a company and you are vested in a qualified employer retirement plan (such as a 401(k) plan), you generally have several options of how to take this money.  Don’t jump the gun and take a distribution before you look at all your options and make an informed decision.  You may have the following options available:

• Leave the money in the former employer’s qualified plan if allowed;  
• Directly roll over all your qualified plan money into a new employer’s qualified plan, assuming the new plan will allow you to do so right away;  
• Directly roll over all your qualified plan money into a conduit IRA until a new employer’s 401(k) plan will accept the money (necessary for certain plan participants to preserve capital gain and averaging treatment); or,  
• Directly roll over all your qualified plan money into a traditional IRA.

Note: If you choose to have some or all of your funds paid to you in cash, your employer may withheld 20% of the amount of the distribution to be sent to the IRS. You may still owe federal and state income taxes, and if you are under 59 1/2 a 10% penalty may still apply.

If you take your retirement money from your former employer’s plan, and you do not have access to a qualified plan in your new job, it is a good idea to roll over your plan funds into a traditional IRA.  This way you retain the deferral of taxes.

One disadvantage of rolling over qualified plan funds to a traditional IRA is that you lose the benefit of a special tax provision called 10 year averaging. (10 year averaging can result in a tax that is lower than ordinary income tax.  However, it is now available only for those born before 1936 under a "grandfather" rule.  Consult a tax advisor for more information.)  However, by rolling over the distribution to a conduit IRA in which qualified plan assets have been segregated, and then back into another qualified plan, you can preserve 10-year averaging treatment.