If you leave the funds in a retirement plan, you have two choices: roll to the new employer 401k and for the most part the funds will be trapped there. You could borrow from a 401k up to $50K or 50% of your plan value, whichever is less. The alternative is to roll the old 401k to a self-directed IRA. Such a plan would give you greater flexibility for investing the funds, such as into real estate or private lending, but everything would be 100% for the benefit of the plan and you would not be able to personally access funds until you reach retirement age of 59.5. A self-directed IRA is simply a means of having broader investment options and more control, but is still a tax-sheltered retirement plan with the same age restrictions.
I think you answered your own question. Why not roll it into your new 401K. Wait until the money is in and take the loan against it. You avoid the early withdrawal and taxes.
Whenever the subject of taking a loan from your 401K pops up, many people would say its a bad idea and you are short-changing yourself, compounding interest, yada-yada-yada.
I call BS. As long as you continue to pay contributions to your 401K while paying back the loan, you are good as gold. I say that because look at it this way. 1) You are paying money back to yourself 2) You are paying money to yourself with interest 3) You are still paying into the 401K 4) You are now earning passive income which have tax deductible capabilities. So why not do it that way?
Just my 2 cents.
@Brian Adzadi Good points. I think the main drawback is if you lose your job, you have only 60 days to pay back the full amount or it's a taxable event. No one expects to lose their job of course.
But I had it happen to a friend of min in the middle of a rehab, couldn't pay it back in time, became taxable, and owed the IRS money in the end. Plus lost that amount from his retirement account.
So just all pros and cons to weigh out.
To learn about the 401k loan rules, see the following:
You would need to open two IRAs-Roth and Traditional-since your 401k plan is made up of both pretax and Roth 401k funds.
You could then invest both IRAs in the same property but you would not be able to use the property for personal use. All the rental income would flow back to the IRAs based on the original amounts initially invested.