When you leave a job you can roll your retirement plan account balance into an IRA, maintaining the tax deferral. You need to be careful with an IRA rollover, though. Always ask for a trustee-to-trustee transfer: don’t accept a check for the money in your plan. Instead, the check should be issued to the financial institution that will hold your IRA. By doing it this way, you avoid the required 20 percent withholding.
For example, if you handle a $200,000 IRA rollover yourself, you’ll receive only $160,000. The other $40,000 (20 percent) will be sent to the IRS. Then it’s up to you to put $40,000 into your IRA. If you don’t make up the amount withheld, which can be substantial, you’ll owe tax on that “distribution,” plus a 10 percent penalty before age 55.