My wife recently changed jobs and we would like to know what would be the best way to handle her 401(k) retirement savings plan. Should we leave it alone or should we move it into a different account like a rollover to an IRA?
Generally, we do favor doing a rollover from a company plan to an IRA when you leave the company, assuming the money will not be needed to live on. An IRA will allow many different investment options and not be subject to any company rules that they may have for their 401(k) plan. The one exception to this advice is when there is low basis company stock in the employer plan. In that case, you might want to consider taking the stock out in kind and paying income tax on the cost basis only. When the shares are sold, the difference between the cost basis and the market value at the time of distribution, the net unrealized appreciation (NUA), is taxed at long-term capital gains rates. You should work with a financial advisor if you qualify to do an NUA transaction.
Any assets going from the plan to an IRA should be done as a trustee-to-trustee transfer to an IRA. The money should go directly from the 401(k) plan to the trustee or custodian of the IRA. The custodian or the trustee will work with the plan administrator to make the transfer.
Rolling the funds over to an IRA will not incur any income tax and the money will continue to grow on a tax deferred basis. When establishing her IRA rollover don't forget to name a primary and contingent beneficiary on the designation of beneficiary form.