You lost your job. Life can send us curve balls at times. However, we can still recover. During the recovery process, while you are looking for another job, do not forget about your money. Many think that leaving the money in the prior job 401k(or similar plan) after being fired, is the prudent thing to do. Nothing can be further from the truth. Who is better at managing your hard earned cash? You? or your prior employer...the one who just fired you?
Moving Money from the 401k to a Traditional IRA
It is a simple process to move those monies, tax free is an added benefit, from your old employer's 401k(or similar plan) to your personal retirement account. The simplest way is to transfer those funds, is to transfer them to a traditional IRA. This account functions, with regards to taxation purposes, just like the 401k type plans--making the transfer is quite simple, and it is easy to complete. Since the IRA is only the qualified tax plan, however, there are a variety of financial services tools that can be used inside the IRA to build monies for retirement.
Moving Money from the 401k to a Roth IRA(Or similar Plan)
Suppose you want to transfer the monies to a Roth IRA? Or, you are seeking to be more creative, and you wish to transfer the monies to another sort of retirement vehicle? This will trigger a taxable event, as the Roth IRA does not function like a Traditional IRA, or a 401k plan. With a Roth IRA, taxes are paid on the monies prior to the contribution to the IRA, yet at the time of the withdrawal of those monies, at retirement, the funds are not taxed. 401k type plans work in the inverse: The contribution into the plan receives a tax benefit, but the withdrawal monies, at retirement, are taxed as earned income. This can be done, just realize there is a taxable consequence to consider. Just like the traditional IRA, there exists many different financial services tools to use inside the Roth IRA to help accumulate wealth for retirement.
Losing a job can be a downer. However, do not leave your retirement monies with your old employer's 401k plan. It is a painless process to move those monies out of that plan, into a plan that you control. Move those monies, and then focus on getting another job. When you decide to move your monies, always develop a financial plan to follow to ensure that you meet your financial goals.