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Have you recently been laid off, or left money in 401(k) plans at previous employers? You can move your retirement funds to a rollover IRA, a tax-advantaged individual retirement account you can open yourself, even without an employer.

Keep It Growing
It may be tempting, but the last thing you want to do is cash out your 401(k), even if you’ve recently lost your job. You’d be subject to federal, state and local income taxes on the amount plus a 10% early withdrawal penalty. And given the stock market downturn, you’ll likely be taking a loss as well.

If you roll over your 401(k) into an IRA, however, whether it’s through brokerages like Fidelity, Schwab (Stock Quote: SCHW), Vanguard, T. Rowe Price (Stock Quote: TROW) or another reputable firm, your funds will keep growing tax-deferred and you’ll benefit from compounded growth over time.

To ensure that you won’t have to pay taxes when your money changes hands, you’ll want to ensure that you don’t cash out your 401(k) before you put it in an IRA. So be sure to choose a direct rollover in which your money goes straight from one account to another.  You might even have access to free help from a rollover consultant team to help you open your new account. Contact your former employer for necessary account information.

Explore Your Options

You may be able to keep your 401(k) with your former employer, but beware: Your company may place restrictions on how you can reallocate your assets and they may even charge fees for continuing to hold your account. That's just another reason to roll over your retirement funds 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.

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.

Also, if there’s a specific fund you preferred on your former employer’s plan, you may not want to switch if your prospective new brokerage doesn’t offer the fund you love. But the brokerage might offer free guidance on what funds have similar investment strategies.

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