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Frequently Asked Question

I am in the process of switching jobs. I will not be able to participate in my new employers 401k plan until I have been employed for one year. What do I do with my plan from my former employer if they will not allow it to remain with them? The amount is under $5,000.00.

Answer: Your only alternative, but still a very good one, is to roll the assets into an IRA. You can leave the funds there, or when you become eligible for your new employers 401k, roll the assets into it.

To do this, first open a "rollover IRA" with your favorite discount broker or mutual fund. Then provide the IRA account data to your former employer. They will transfer the 401k directly to the IRA. You don't want the assets sent to you or your former employer will be required to deduct 20% for possible taxes.

If you plan to move the assets from this rollover IRA to the new 401k, two things:

1. The IRA can't have any other funds in it, so don't use an existing IRA or deposit any other funds to it.

2. Check to be sure that your new employers plan will accept rollovers.

This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.


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