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I recently left a job where I had a decent-size 401(k). I am in the process of rolling this into an IRA account with a broker. I separately have an IRA account that I put $2,000, after tax, in annually. I am keeping them separate, since one is pretax money and the other is not.

In my new job, I will not have a 401(k). Can I now contribute $2,000 to an IRA pretax? If so, should I put that money into the IRA with the 401(k) funds or set up a third IRA? Do I have any options besides these that I am not aware of? I am now very confused with what had been pretty straightforward rules. Help! -- Paul Mahoney


You're not alone. As a matter of fact, 40% of all working Americans expect to change jobs in the next two years, according to Bill Arnone, national director of employment financial education services at

Ernst & Young

. So moving 401(k) plans is a huge anxiety these days.

If your 401(k) balance is at least $5,000, then by law you can leave the account with your former employer's plan provider, says Dee Lee, a certified financial planner and co-author of

The Complete Idiot's Guide to 401(k) Plans

. But rolling the balance into an IRA, like you're doing, may be a better option. An IRA offers you more flexibility and investment opportunities. But those are your only two options to avoid getting smacked with a big tax bill.

You can have as many IRAs as you want. Keeping them all with one broker or mutual fund company will limit the amount of paperwork you receive. So if you decide to go with, say,




, you'd get one statement that details all your IRAs. Just make sure you aren't paying excess management fees, reminds Arnone.

"I've got one account with four different IRAs," says Lee. In your case, you'd have three: one with your 401(k) money, one with your after-tax contributions and a new one with your new pretax contributions. Just note: The maximum you can contribute annually to all of your IRAs is $2,000.

You definitely want to keep your rollover 401(k) money in a separate IRA. Remember, you've contributed to that account with pretax dollars, so you haven't paid tax on that money yet. In your after-tax IRA, while you've already paid tax on the contributions, you haven't paid tax on the earnings. If you mix all that money together,

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will never be able to tell what's taxable and what's not. So you may end up paying tax on all of it.

IRA vs. 401(k)

With your 401(k) money in a separate IRA, you can roll it into another 401(k) plan if you eventually find a job that has one.

But don't assume that you must get that money back into another 401(k). "I'm a big advocate for putting the money in an IRA and not rolling into another plan," says Lee.

The two big perks to a 401(k) are creditor protection and the ability to borrow. In many states, a creditor can come after your IRA, but not your 401(k), reminds Lee. And a 401(k) allows you to borrow a percentage of the account for first-time home purchases and extreme hardships (e.g., your home burnt down).

"Other than that, the IRA gives more choices," Lee says.

On the investment front, especially. Where your 401(k) choices are limited to what the plan offers, your IRA can invest in anything -- stocks, bonds, mutual funds, options and certain U.S. gold coins, according to the tax rules. Your IRA cannot invest in collectibles, like paintings or rugs. Be aware that many brokers won't allow risky investments, like options trading, in an IRA for liability reasons. So you have to find a broker who's willing to allow it, if that's your gig.

On the estate-planning front, with an IRA you can elect anyone as your beneficiary. With a 401(k), it automatically is assumed to be your spouse. You would need your spouse's signature to request a different beneficiary.

You are required to start taking distributions from your IRAs at age 70 1/2. With multiple IRAs, you can select which IRA you want to start depleting.

Even better, if your adjusted gross income -- line 34 of your

Form 1040 -

U.S. Individual Income Tax Return

-- does not exceed $100,000, you can roll your IRA money into a Roth IRA, the popular investment vehicle Congress created in 1998. You will owe ordinary income tax on any pretax contributions and earnings when you convert to the Roth. But once the Roth account is open for five years and you hit age 59 1/2, you can withdraw the money tax and penalty free.

Watch for Leakage

Regardless of whether you roll the money to a new 401(k) plan or an IRA, your biggest concern should be "leakage." That's an industry term for the price employees pay for switching jobs, says Arnone. Sometimes when people switch jobs, they stop contributing for a few pay periods, due to payroll issues or lack of enrollment windows. But be proactive here. Don't let one paycheck go by without continuing to put money aside for your retirement.

It's the difference between eating canned tuna or fresh salmon in your retirement, says Lee.

The choice is yours.

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TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.