Out of the job market, what to do with a 401k?

[Cancer Merchant]

I'm transitioning careers at age 30 and have decided to return to school for five or so years. For the past five years I have been contributing to a 401k. Since I've left my job and willno longer going to be contributing to it, should I let the money stay in that 401k, or is it more worthwhile to roll it into a (Roth?) IRA until I rejoin the workforce? What specific pitfalls should I watch out for in either case?

I'm sure this post is missing essential details, but I'm clueless about the process.

[maxtower]

You should probably roll it over into a non-Roth IRA. You will have more flexibility in investment options and possibly some lower cost index funds depending on who holds your 401k now.

[prohornblower]

You can roll it into a traditional IRA, THEN into a RothIRA if you like. If you make less than $100K, and don't mind paying taxes on the money now, then Roth is probably for you.

Also, the money you roll into a Roth will NOT count towards your $4K/year contribution limit. It is treated differently. For instance if you have $12K in your 401(k), and roll it to a Roth (eventually), you can still contribute 4K in 2006 (for a total of $16K).

[punkass]

[ QUOTE ]
I'm transitioning careers at age 30 and have decided to return to school for five or so years. For the past five years I have been contributing to a 401k. Since I've left my job and willno longer going to be contributing to it, should I let the money stay in that 401k, or is it more worthwhile to roll it into a (Roth?) IRA until I rejoin the workforce? What specific pitfalls should I watch out for in either case?

I'm sure this post is missing essential details, but I'm clueless about the process.

[/ QUOTE ]

OMG! PERFECT SITUATION!

Roll over into a traditional IRA. You pay no fees. Wait until next tax season, where you will make no income. Rollover your IRA into a ROTH IRA at that time. You can rollover the first (using this years tax rates) $8200 for free (due to exemption and standard deduction, given single, no dependents)! The next $7550 you can rollover for $755. So you can rollover $15750 for only $755. It'll be a little better next year because they tweak these numbers every year for inflation. I'd do $15750/year for $755 for the next 5 years, until you roll over all of your money. I don't imagine you having more than 75k in your 401k if you're 30.

This is a very ideal situation usually only available to early retirement seniors. I hope you haven't rolled it into a ROTH IRA yet.