I'm thinking not to do anything so it will become an IRA
If you decide that you don't want to move the funds to your new 401(k) because of the fees, or the poor investment choices, or your new company doesn't allow you to roll funds into the 401(k), don't just let it automatically convert to an IRA.
The automatic conversion, while quick, does mean that the old 401(k) company decides which financial company the money will be rolled into. In all likelihood it will be their financial company. They will automatically create the account, give you the information you need to establish the login credentials, and then money will be invested into whatever default investment option they pick. They should tell you in advance how they will map your existing investments.
The result could be a financial company without few good investment options, and a default investment that don't match your goals. It could be a age-based fund, or an S&P 500 fund, or something else. That means that post-transition you will still have choices to make, and you might still be rolling the funds into another financial institution.
So take the time before the deadline to pick a IRA custodian that has the options you want with reasonable expenses. Then contact the old 401(k) company and the new IRA company and get the funds rolled over.
A few notes regarding taxes:
- If the color of the money doesn't change there is no tax impact. So pre-tax funds in the 401(k) go to a traditional IRA. Roth 401(k) money goes to a Roth IRA. Company match money is also pre-tax so it ends up in the traditional IRA.
- These rollovers do not count against and annual contribution limits, because they are already retirement funds.
- If you roll the funds over to the IRA company you pick, or to the new 401(k), do not have them write the check to you. Get the new company to tell you what words need to be on the check, if the funds can't be transferred electronically, and then have the old company follow the instructions. Getting the check made out to you adds paperwork and deadlines, and could have tax complications.