How to Roll Over A 401(k) Into an IRA

If you switch to an IRA you likely have more freedom to reallocate and may even pay less in fees. Possibly a lot less: The Vanguard Group claims the average mutual fund charges six times more in fees than the average Vanguard fund.

"Once you roll over, typically your investment options will expand," says Petra Campos, director of retirement products for Charles Schwab (SCHW Quote).

But should you choose a traditional or a Roth IRA? Roth IRAs, which are funded with after-tax dollars, are ideal for people who haven't reached their peak earning years. This is because your current tax bracket is lower than it will be at retirement, so you'll end up paying less in taxes. For those who have reached their peak, stick to a traditional IRA. (Taxes for traditional IRAs are taken out at retirement; so if you're at your peak now, your tax rate will likely be lower when you retire.) Whether you have a Roth 401(k) or a traditional 401(k), you can roll it into a Roth IRA, but to go from a traditional 401(k) to a Roth IRA, you'll have to be making less than $100,000 and be willing to pay taxes now.

When to Stay

If you've been recently laid off, you might want to wait until you find another job. You may want to roll over your 401(k) from your old employer to a new one.

You might also want to stay in your former employer's plan to take advantage of any specially priced or custom investment options, or managed money services, if they're better than what you can get from an IRA, according to Fidelity Investments.