If you leave your job, the most sensible thing to do with your 401(k) from a tax-management point of view is a 401(k) direct rollover (also known as a trustee-to-trustee transfer) of the money. With this type of rollover, the money goes directly from your 401(k) plan into another tax-deferred account — an individual retirement account (IRA) or your new employer’s plan.
Roll over into an IRA. You can roll money from your 401(k) into a traditional IRA. When rolling over into an IRA, you can do a partial rollover, rolling over only part of your 401(k) while leaving the rest in your 401(k) account or cashing it out.
If you already have a traditional IRA, you can roll your 401(k) money into that account. However, you may want to open a separate IRA just for your rollover money to help keep track of the funds easier.
You can’t roll your 401(k) directly into a Roth IRA because a Roth IRA is treated differently for tax purposes. But you may be able to convert your traditional IRA into a Roth after doing the rollover.
Roll over into another employer’s plan. You may be able to roll the money over into your new employer’s plan, which you may decide to do for a number of reasons:
Your new employer has a terrific plan with great funds and low expenses.
You want to consolidate all your retirement savings in one place for ease of management.
You think you may want to take a loan someday (you can’t take a loan from an IRA).
Your new plan may require you to wait until you’re eligible to participate before accepting a rollover from your old 401(k). If, for example, your new employer has a waiting period of one year before you can contribute to the 401(k), you have to wait one year to roll the money into the 401(k). In that case, you can either leave your money in your former employer’s plan or move it to a conduit IRA, ready to be transferred into the new 401(k) when the time comes.
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Source:http://www.dummies.com/how-to/content/how-to-roll-over-your-401k.html
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