Benefits

• Bankrate.com points out that leaving your 401k retirement account with a former employer is probably a bad idea. The question remains: how important will you be to that company years after you left? Moving your money makes sure it's protected and under your complete control. Former employers are required to keep your account safe if you have more than $5,000, but that same business could go bankrupt, providing you no recourse later on.
  
  

Mistakes Can Occur

• Removing pre-tax funds from the retirement account--even if you plan to deposit them in another retirement account--means they are treated as income in the year of the withdrawal. And, if you're younger than 59 ½ years of age, a penalty is slapped on top, adding an additional 10 percent loss. Between tax tables and the penalty, this can add up to more than 30 percent of your retirement money. To avoid this, do a rollover of your 401k, as penalties usually occur when a person tries to transfer funds herself rather than using a direct rollover (administrator to administrator).
  
  

Rollover Options Exist

• If your new employer has a retirement program, you may be able to transfer your old account balance to the new employer. Different employers' 401(k) programs can choose to accept transfers from prior account administrators (not to be confused with prior employees). Transfer is not guaranteed on request. The flip side, however, tends to be that your investment options get restricted to whatever investment choices the new employer provides. Sometimes this can be less promising than before. Once in, the money can't be removed except through borrowing or employment severance from the current employer.
  
  Or you can roll your 401k from your old employer to a traditional individual retirement account (IRA). As long as the money stays pre-tax in status (i.e. placed in a IRS-recognized pre-payroll tax account) you avoid penalites. You can find IRA options with many banks and brokerages. You, however, will be in charge of the investment options, and if you make a bad decision you only have yourself to blame for value losses.
  
  

Technical Problems to Avoid

• Educating yourself on the rules of your old employer's plan benefits you by allowing you to avoid mistakes in filing rollover documents. Different employer plans have different rules. When you leave the old job, be sure the employer notifies the plan administrator. Otherwise the plan won't release your funds.
  
  Forms need to be filed correctly. Use your old employer plan's rollover forms to be safe. Don't rely on the new plan to do the work for you.
  
  Double-checking your information submitted is key to avoiding processing mistakes. Make sure the documents reflect a direct rollover from plan to plan. If not, the plan will send you a check and you will be under a clock to deposit it in an IRA before it's too late and taxes kick in.
  
  

Tax Issues Loom

• Sometimes a rollover isn't the best option. If you have lots of former employer company stock that has appreciated significantly in your employer 401k plan, it may be better to withdraw the stock rather than keep it in a retirement plan. You will have to pay taxes only on the value of the stock price when you received it. This allows appreciation to be taxed at a capital gains rate of 15 percent when you finally do sell the shares later on.