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Cash out, roll over or leave 401(k) behind

In fact, if you have a 401(k) loan outstanding at the time you leave a company, most plans demand that you pay it up in full right away; otherwise it's treated as a taxable distribution.

Another reason not to leave your money behind: 401(k) plans are often loaded with fees that participants don't even know about. While rules to increase transparency of 401(k) fees have been in the works for years, they're not in place yet, though it's likely that the Labor Department will offer guidance in the near future.

Option No. 3: Doing an IRA rollover

The surest way to get control of your retirement funds without the financial drawbacks is to roll over your funds into an individual retirement account. In a direct IRA rollover, the funds are sent straight from your 401(k) or other qualified employer retirement plan into an IRA without you touching the funds.

"The first step is being sure you have a destination for the money," Dougherty says. "Then you provide the third-party administrator of the former employer's plan the information relating to that new account, including the account number, your Social Security number and whether the assets can be directly deposited via a book entry transfer of shares or by check sent to the new custodian of your IRA."

Another choice, an indirect rollover, works this way: The check comes to you, and you have 60 days to get the money into a new retirement account to avoid taxes and early withdrawal penalties. The 20 percent withholding requirement still applies, so you have to have enough cash on hand to cover that amount. You'll get that money back when you file your return.

Clearly, a trustee-to-trustee transfer of funds is the better option of the two.

Galli says clients who prefer a hands-on approach to retirement planning and a wide range of investment options are good candidates for an IRA rollover.

"Rolling money into an IRA opens the toolbox, so to speak, for the investor to invest in individual stocks, bonds -- the whole range of investments is now available," Galli says.

It also makes sense to do an IRA rollover if you need to use some of the money for educational expenses -- say, to get training for a new career. Although you'll have to pay taxes on the money withdrawn, it won't be subject to the early withdrawal penalty that other distributions incur. "That exception doesn't apply to withdrawals from 401(k)s," Galli says.

Consult with the pros

A separation from your employer can be a good time to step back and re-evaluate your retirement plan. A good financial adviser can help you sort things out while you decide what to do. As urgent as your financial situation may seem when you're unemployed, don't rush into a decision.

"The No. 1 mistake that I see people make is that they panic," Astre says. "Just slow down. You don't have to do these things in a hurry."

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