You are eligible to roll over the money into a new IRA within 60 days. You can open a simple IRA at many banks and brokerages. If you do not roll the money over, then it becomes fully taxable, including a 10% penalty for early withdrawal. You don’t get a break on the penalty even if the employer discontinued your participation.
If you do a rollover, you have to roll over the entire amount, including the amount that was withheld for taxes. For example, if the 401(k) balance was $1000, the employer would’ve been required to withhold 20% or $200, and send you a check for $800. To complete the rollover, you would have to send $1000 to the new IRA. You would get the withholding back as part of your tax refund when you file your tax return. Be sure to tell the new IRA that this is a rollover and not a contribution.
