ASK A FINANCIAL PLANNER: 'I'm leaving my job — what do I do with my 401(k)?'

Flickr / Jason Lander

Certified financial planner Sophia Bera answers:

I'm leaving my job of the last five years and have a couple thousand dollars in a 401(k).

My new job has a 401(k) as well. What should I do with the money I've already saved at my old job?

Congrats on your new job! You have a few different options of what you can do with your old 401(k):

• You can cash it out. (IMPORTANT: DON’T DO THIS!)
• You can leave it in your old 401(k) plan.
• You can do a rollover into your new 401(k) plan.
• You can roll it over into an IRA
• You can roll it over into a Roth IRA.

Here's what you should know about each option:

Don’t cash it out

Some people choose to cash out their old retirement accounts without realizing how that choice will affect them in the long run. When you cash out your 401(k) you’ll pay a 10% penalty plus taxes on the money you take out.

This means that if you had $10,000 in your 401(k), you’d have to pay a $1,000 penalty plus taxes on the amount withdrawn. If you’re in the 25% federal tax bracket and pay 5% in state taxes, you’ll pay an additional $3,000 in taxes. The check you receive is down to only $6,000.

However, the real financial impact is the future value of that  $10,000. Let’s say you plan on retiring in 35 years. That $6,000 check you received could have been been valued at more $100,000 by the time you retire. Check out this calculator from Wells Fargo to see the impact that cashing out your 401(k) could have based on your tax bracket.

You probably shouldn't do nothing, either

Many people choose No. 2: doing nothing. But this isn’t necessarily the best option because of a few reasons:

Some 401(k)s have high fees associated with the investments in the account. Check your statement to see what fees you’re paying. In addition, look at the expense ratios of the funds you’re invested in. (You can do that on Morningstar). If they are above .5% then you can probably save money by moving the account elsewhere.

There are a limited amount of fund choices available. Your employer chooses a set fund menu of investment options available to you, and if you don’t like them, you’re stuck with them.

You could roll your old 401(k) into a new one

Keep it simple with No. 3: If you have a new 401(k) with many low-cost investment options (i.e. index funds), you may decide to roll over your old plan into your new 401(k). Since you only have a few thousand dollars to move, this is a simple solution that helps you streamline your accounts and could be a good fit for you.