High unemployment is leaving displaced workers with a dilemma: what to do with their 401(k) retirement accounts.

For guidance, MainStreet spoke with certified financial planner Mark Wilson, from Tarbox Group in Newport Beach, Calif.

If I’m suddenly jobless but have a 401(k) at my old workplace, what’s my best financial planning move?
Mark Wilson:
Consider a direct rollover from your employer plan into an individual retirement account. The main reasons are that, No. 1, investment choices in your IRA are typically more flexible than the options available in your 401(k), No. 2, fees in an IRA are more transparent and typically lower than those within your 401(k) account and finally, both types of accounts are well protected from creditors in case of bankruptcy.

Are there circumstances in which a direct rollover isn’t the best option?
An exception may apply if you have company stock in your 401(k). There are some powerful strategies that allow you to roll the stock out of the plan and reduce your future tax burden, by paying capital gains taxes instead of ordinary income taxes. These strategies don't always make sense and require very careful handling to make sure the transaction goes as planned, but when used properly there can be substantial tax savings.

Are there times when the smart choice is to stay in the old employer’s plan?
It might make sense to leave the assets in the 401(k) if the plan has investment options not easily available in an IRA, although that is rare. For those who do not want the temptation of “available” cash, leaving the 401(k) intact is a reasonable strategy.  The most common reason to leave assets in the 401(k) is if you might need the cash in the account and you have left the company between age 55 and 59 and a half. This is a case where you can avoid penalties on withdrawals as long as you draw the funds directly from the 401(k); this exception is not available for draws from an IRA.

Why should I avoid tapping my 401(k) for quick cash?
401(k) money is best used for retirement and anything you draw from these accounts will reduce your long-term spending ability.  Also, the tax consequences of IRA or 401(k) withdrawals can be severe. The lure of getting an easy $10,000 can quickly turn into $10,000 spent now and a $4,000 tax bill owed later. You will pay ordinary income taxes on any taxable amount you withdraw—federal tax rates up to 35% plus state taxes—and you will have a 10% federal penalty, plus possible state penalties, if you do not meet one of the exceptions, such as reaching age 59 and a half.

If I absolutely must tap into my nest egg, aren’t there ways to get around the tax liabilities and penalties?
: Taxes will be due on withdrawals—there is no way to work around that. However, there are a number of ways to avoid penalties. For the newly unemployed, the most common ways to avoid the penalties are reaching age 59 and a half, direct draws from your 401(k) after separating from service after age 55, withdrawals to pay deductible medical expenses and IRA withdrawals used to pay health insurance costs while jobless. Exceptions should be carefully explored to make sure they fit your individual circumstances before distributions are made.

If I decide on an IRA rollover, what sort of brokerages and investment funds make the most sense?
We recommend working with a discount brokerage firm: Fidelity Investments, Charles Schwab (SCHW), TD Ameritrade (AMTD) and Vanguard Group are all good options.  For small accounts—say under $30,000—we favor using the “Target Date” or “Lifestyle” funds, which typically hold a mix of stocks and bonds and are periodically rebalanced.  For larger accounts, it starts to make sense to build your own globally diversified portfolio.