Here's what to do with your 401(k) when you change jobs

Switching jobs, while exciting, means dealing with logistics, including what to do with your old 401(k) plan.

CNBC Make It spoke with Nick Holeman, certified financial planner at Betterment, who broke down all of the options you have.

1. You can leave the money in your old 401(k) plan

There may be a minimum balance required to leave your money with your old company, but most companies will let you do it.

That said, there are a few downsides to keeping your 401(k) where it is, says Holeman. You can no longer contribute to it and you'll have multiple 401(k) plans floating around. Plus, "if your old company gets bought or switches 401(k) providers, now you don't know your login information or your account number and it can be a pain to figure out."

Leaving your funds with your previous employer is "definitely an option," he says, "but typically, the downsides mean it's not the best option."

2. You can roll over your 401(k) to your new employer's plan

Assuming your new employer accepts rollovers, "this is a good option if you like the investment choices and the fees aren't too high," Holeman says. "This way, your money will all be in one account and it'll be easier to manage."

If you aren't happy with the investment options offered by the new plan, or the fees are too high, you have a third option.

3. You can roll over your 401(k) to an individual retirement account (IRA)

Your third option is to move your 401(k) into an IRA or Roth IRA, which is a great option because IRAs "typically have lower fees and more investment choices," Holeman explains.

"They're both retirement accounts — you just get to pick when you pay the taxes," says Holeman of the difference between a traditional IRA and Roth IRA. With a traditional IRA, you contribute pretax dollars and let that money grow tax-deferred over time. You'll pay taxes on your contributions (and investment gains) only when you withdraw the money, which you can do starting at age 59½. If you withdraw before then, you'll have to pay a penalty.

With a Roth IRA, contributions are taxed when they're made, so you can withdraw the contributions and earnings tax-free once you reach age 59½. There is an income cap on the Roth IRA: For 2018, the income phase-out range is $120,000 to $135,000 for singles and $189,000 to $199,000 for married couples who file jointly. And for those who quality, the maximum yearly contribution is $5,500 (or $6,500 for people aged 50 or older).

"Once you know what your options are and what makes sense for you to do from an investment and fee perspective, then you actually have to execute the rollover," says Holeman.

How to move your money

You have two options when it comes to rolling over your money: a direct rollover, which means your money is transferred straight from one account to another, or an indirect rollover, which means you receive a check from your old account and have to send it to your new account. Holeman recommends doing a direct rollover: "When you do an indirect rollover, you're the one handling the money, so the 401(k) provider will write you a check and then it's up to you to actually deposit it into the new account.

"There's just more that can go wrong, so I typically recommend doing a direct rollover and let the companies handle it."

With a direct rollover, your 401(k) funds move straight to your new account and the money never passes through your hands. "You just have to fill out a form, sign it and the rest is pretty much out of your control," says Holeman.

A few other things to keep in mind:

• When switching jobs, you never want to withdraw the balance of your 401(k) balance instead of moving it. Cashing out before age 59½ incurs a 10 percent early withdrawal penalty. (An exception to this rule is if you lose or leave your job at age 55 or later. Then you won't have to pay the 10 percent penalty.) Plus, you'd be reducing your own retirement stash.
• There may be a one-time fee for doing a rollover. "Some accounts will charge a closing fee of say $50," says Holeman. "But that's like ripping off the band-aid — of course, no one likes paying fees, but sometimes you just have to do it. Plus, most of the time, they're pretty minimal."
• There's no limit on how much 401(k) money you can transfer to an IRA. "If you're just moving accounts, it doesn't count as a contribution, so you could roll over $1 million, $2 million or $10 million in one year," says Holeman.
• To keep things as simple as possible, Holeman recommends hopping on the phone with your 401(k) provider to initiate a direct rollover. "It's the easiest way," he says.

This is an update of a previously published story.

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