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Originally Posted by vachss
Generally you'll want to roll it over into a traditional IRA. That way you don't pay tax on the transfer and you'll have more options (and probably lower costs) than you would leaving your money in the 401K.
One notable exception is if 401K has some advantageous fund options you can't find in an IRA. An example would be a Stable Value Fund with a good rate. Sometimes these are better than the bond funds you'll be able to buy in a conventional IRA. If you're just keeping your money in stock index funds though, your options are likely better in the IRA.
You can transfer some of the money into a Roth IRA if your income level allows it. Any pre-tax money you transfer will be taxed as ordinary income, but future gains are tax free. This is worthwhile if you expect to be in a higher tax bracket in retirement. If you expect your tax rate during retirement will be less than now then it's probably better to go with a traditional IRA.
An exception to this is if you have after-tax money in your 401K. Per a recent IRS ruling (last year) this after-tax 401K money can be rolled over directly into a Roth. Since you've already paid tax on this money this kind of Roth rollover is usually worth doing. Most of us, though, made most of our 401K contributions pre-tax, so this usually isn't a big component.
Caveat: I'm no financial planning expert, so take my recommendations with a grain of salt. I'm just a soon-to-be retiree who has recently been checking out my options.
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I have a ways to go but I managed to get 2 pensions along the way as my last job, I started 6 mos. before they stopped. They just tried to buy me out with a lump sum, and imho the number was pathetic. Meaning, I could not take that lump sum, and buy an annuity of equal value. If you are getting ready to retire, I bet you have a pension (defined benefit). Before I could care less, but when I see that I can get a just under 2k/mo. (sure not worth that much but better than nothing) for the rest of my life, why not? I plan on making my < 2 yr. old son the survivor. I feel we've got a shot in beating the actuaries. I need to live 82.3 yrs. and my son 88.