Changing jobs can be quite a hassle for most new employees; deciding what they should do with their existing 401(k) plan could be even more time-consuming, not to mention confusing.
In Revenue Ruling 2004-12, the Internal Revenue Service just made it a bit easier for employees to take some time to consider what they want to do with assets accumulated at their previous employer. Now, employees will not be penalized if the assets originally placed in a new employers 401(k) plan are subsequently taken out.
The Ruling updates IRS code due to changes from the Economic Growth and Tax Relief Reconciliation Act of 2001. According to the Ruling, if the qualified plan, "separately accounts for amounts attributable to rollover contributions to the plan, distributions of those amounts are not subject to the restrictions on permissible timing that apply Accordingly, the plan may permit the distribution of amounts attributable to rollover contributions at any time pursuant to an individuals request."
Despite a potentially appealing select choices of mutual funds in the new 401(k) plans, typical reasons that employees may want to move their old 401(k)-plan money could be unhappiness with investment selection or performance, or a desire to use the money for other reasons, such as estate planning. Before the tax law change of 2001, it was much more flexible to move money out of IRAs than a 401(k) plan.