You probably know that when you leave a job, you can roll your 401(k) over into an IRA or cash it out. But do you know that you may also be able to leave your account with your old employer or take it with you to a new company?

Your decision should take into account investment choices and plan performance, plan fees, taxes and your need for quick cash.

Here’s what you need to know to make a choice that will keep your retirement savings growing safely until you need to tap them.

Cash out and burn

Don’t crack open your nest egg prematurely unless you’re desperate for cash. Even if you don’t spend all of the lump sum you receive, your remaining retirement savings will no longer grow tax-deferred.

In addition, you’ll pay income tax on your withdrawal, which may push you into a higher tax bracket. The pain can get even worse. If you’re younger than 55, you’ll also get hit with a 10 percent early withdrawal tax penalty.

Switch to an IRA

Rolling your 401(k) over into an IRA will keep your savings growing tax-deferred. It will also open a world of investment choices to you, which may be a refreshing change if your old employer’s menu of mutual funds is limited or mediocre.

If you opt for a rollover, keep the process simple. First open an IRA at a brokerage house or mutual fund company, even if you already have an IRA. Reason: If you keep your 401(k) rollover separate from your other investments, you may someday be able to roll it over into a new employer’s 401(k) plan.

Next, make a so-called direct or trustee-to-trustee transfer. Ask your former employer to make the check for your 401(k) balance payable to your new IRA, not to you. If your old boss makes the check out to you, he must withhold 20 percent of it for taxes. Then you’ve got 60 days to deposit the check in an IRA. If you want to roll over the 20 percent that your former employer withheld, you’ll have to come up with the equivalent amount of money yourself and deposit it in your IRA. If you don’t, the IRS will consider it a distribution and you’ll owe income tax on it plus a 10 percent early withdrawal penalty if you’re under age 59½. You’ll get your 20 percent back from the IRS after you file your tax return, however.

Sit tight

If you’re satisfied with the investment choices in your old employer’s 401(k) plan, you may want to leave your savings in it to continue growing tax-deferred. Be sure to make that clear to your old boss, however. That’s because if you have less than $5,000 in your account, your former employer has the right to cut you a check for the money or dump it into an IRA.

There is another good reason why you may wish to leave your 401(k) with your former employer instead of rolling it over into an IRA. Let’s say you want to withdraw a portion of your 401(k) balance instead of cashing out completely. If you’re 55 or older when you leave your job, you can take the money without incurring the 10 percent tax penalty on early withdrawals.

By contrast, you’ll pay the 10 percent penalty if you make an IRA withdrawal before you hit age 59½, with limited exceptions. In either case, you’ll pay income tax on your distribution.

There are some negative aspects to leaving your 401(k) behind after you leave your job. You won’t be able to make any more contributions to it or, in most cases, to borrow from it. When you decide you want money from it, some companies may insist that you take your entire balance.

Take your savings to your new job

Some companies will accept 401(k) rollovers. If your new employer does, you may want to consider this option for two important reasons. You’ll be able to keep your retirement savings growing tax-deferred while consolidating your holdings. In addition, if you ever want to borrow from your 401(k), you’ll have a bigger nest egg to draw on. You can’t borrow from an IRA.

Of course, it doesn’t make sense for you to shovel all of your retirement savings into your new 401(k) if the plan has high fees or limited investment choices. To find out, check its ranking on, a firm that rates retirement plans.

If you decide to roll your old 401(k) over into your new plan, keep life simple and ask your old boss for a direct rollover.

Denise Topolnicki Denise Topolnicki is the author of “How to Raise a Family on Less Than Two Incomes” (Broadway Books).