I would definitely not cash it out. You’ll have to pay taxes and the 10% penalty if he’s under 59 and a half. If it’s making $10 per year, what is it invested in? It sounds like it may be in cash, which won’t be useful over the long term.
To make the best choice you’ll need to do some research on the current 401k. Sometimes people will automatically say to roll it into an IRA, but that might not be the best option depending on your circumstances.
When leaving it in the 401k would likely be best:
-You have good, low cost investment options inside the account (like index funds)
-You need the protection from lawsuits that @SFF mentions
- He left the company at 55 or later, in which case he may be able to take early penalty free withdrawls
When rolling it into an IRA would likely be best:
-You have high cost, bad investment options in your 401k
-You don’t need the protection from lawsuits - you’re covered by insurance
-He left the company younger than 55
-You want to be able to control the investments, or invest in options not available in the 401k
Depending upon your tax bracket, and the time you have left to go until retirement, it might be worth paying the taxes and rolling the funds into a ROTH. If your tax bracket is low because, for example, the business isn’t making much money, you might be able to do the conversion at a low tax cost. However, if your tax bracket is high, or you’re going to need the money soon, this may not be the best choice.