What do I do with my old retirement plan?[ Edited ]
I received a notice from my previous employer that I had funds from my retirement contributions. I have been given the option of withdrawing the total and having it refunded to me or rolling it over into an IRA (Roth or Traditional), 401, or 403 etc. I am currently unemployed and need to know what option brings the most benefit for me in the long run. In the event I need to offer more details please supply me with contact information I can follow-up with.
In my mind, a key point you made in your question was that you were looking for a solution that makes the most sense for the long run. With that as your guiding principal, the one thing you don't want to do is withdraw money from your retirement savings. So, taking what you called a "refund" is the one option you should avoid. Remember, anything you withdraw from your traditional plan at work will be subject to taxes and if you weren't age 55 during the year in which you were separated an additional 10% penalty. With the "take the money and run" option out of the way, lets look at the options that will make sense for the long haul:
Leave it in place. In many cases, former employers will allow you to leave your retirement savings in the plan. The upside here is that you don't have to do anything and if you have investment options and reasonable expenses this could be a good plan. However, in your case, this is apparently not an option.
Roll it to a new employer's plan. This would allow you to consolidate your retirement investments at your new employer's plan. Since you are still on the hunt for a new job and need to act soon, this won't work.
Roll it to an IRA. In my mind this is the option that makes sense for you. As long as you move the money directly from your traditional retirement plan to an IRA --"a direct rollover"-- there won't be any taxes or penalties. You can build a suitable investment portfolio and it may make sense to keep some of your IRA in cash, just in case you are forced to tap it to make ends meet before you find a new job. Remember though, any distributions from your IRA will be sujbect to taxes and penalties. While the move directly into an IRA won't trigger tax consequences, any withdrawals will.
Roll it to a Roth IRA. This move would require you to pay taxes on the traditional retirement plan balance that is converted to a Roth IRA. The upside is that having paid the taxes today all of the money in the Roth IRA and any growth between now and when you retire could all be available to you tax free--as long as you've had the account for 5 years and turned 59 1/2 when you make a withdrawal. Moving to a Roth IRA can be a good idea, but since you're still trying to find a job I'm not sure you want to create an unnecessary tax bill. Remember, you could always convert a traditional IRA to a Roth IRA later when it might make more financial sense.
That's a quick review of your options. Give one of our advisors a call at 800-771-9960 and they can explore the specific details of the situation and answer any additional questions that you have. Good luck.