Rather than keep their retirement monies within their former employers' plans, terminating employees may find it more convenient to roll their retirement assets over to their new employers' retirement plans (if their plans are designed to accept rollovers). Maintaining retirement assets in one retirement plan allows the employee to easily track performance and receive only one periodic statement.

Employees who elect to take a cash distribution have 60 days from the date they receive it to roll all or part of it over to another eligible retirement plan. Any cash distribution paid to the employee is subject to a mandatory withholding of 20 percent, even if the employee intends to roll it over later. An employee may avoid the 20 percent mandatory withholding if they choose to have the plan trustee roll their distribution directly to the trustee of another eligible retirement plan or IRA.

If an employee does roll the cash distribution over after receiving a cash distribution, and wants to defer tax on the entire taxable portion, the employee will have to add funds from other sources equal to the amount that was withheld. Any taxable amount that is not rolled over must be included as income in the year the employee receives it. In addition, if the employee is under age 59 1/2 at the time of the distribution, any taxable portion not rolled over may be subject to a 10 percent additional tax on early distributions.

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