Rolling over your 401k plan into a more flexible IRA plan allows you to continue putting off paying taxes on your 401k distribution. If, however, you choose to take your 401k distribution out, you can get it in one lump sum or get a check spread out over a specified time period or whatever options for payout your plan provides.

If you are not 55 years or older when you leave your job, there is also a 10% penalty for withdrawing your money out earlier. If you are over the age of 55 and decide to retire rather than to look for a new job, you can take your money out in a lump sum and gain some tax advantage that you will have to decide upon with advise from your accountant.

If you want to make the most of your 401k, wait until your retirement. The only time you can truly take advantage of withdrawing your 401k in lump sum is when you are your retiring age and you lose your job or decide to leave. Otherwise, you get to pay 10% early withdrawal penalty. On top of that, you will be charged with income tax as the money will be declared as your income for the year.

The only time you can truly benefit from withdrawing a lump sum cash as far as income taxes are concerned is if you are at your retiring age when you decide to leave your job or got fired, for that matter. Under 55 years of age, you are immediately charged with 10% early withdrawal penalty, not to mention the income taxes you have to pay since your withdrawal will be declared as your income for that year.

It only makes sense to rollover your 401k into an IRA directly from one fund into another if you find another job. Until you find another job, you should leave your 401k distribution in your old account, earning interest and keeping tabs on the managers of your 401k plan.

If your take your 401k distribution directly from your fund and then redeposit it into a new job’s IRA, you will save on the early withdrawal penalty but will have to pay 20% in tax withholding. That money for your taxes will come out of your distribution before you get a cash pay out into your new IRA plan.

The question of rolling over 401k plans is basically one of how much money do you want to lose by handling you plans distribution before retirement age? That question and many others can best be answered by a tax consultant, an accountant, or some other financial advisor. One thing is for sure, when you lose your job, you shouldn’t just jump at the chance of spending monies that you took years to accumulate in your 401k plan.

Now, you should look into how to rollover your 401k for more information. You can find more tips and suggestions at 401k rollover school.