Things to consider before rolling over an IRA
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Fran Kinniry, a principal at Vanguard Investment Strategy Group, says sometimes people who get the cash are tempted to go out and buy luxury items such as motorcycles and boats -- purchases that most financial experts never condone if you're financing them with retirement funds.

"Once you get the check in hand, we see that some people are tempted to do the wrong thing," Kinniry says. "Sometimes if you can't see it, can't feel it, can't touch it, there's some benefits from that standpoint."

You can't see it, feel it or touch it if you do a direct rollover to an IRA.

Consider cashing out in these cases
Sometimes it doesn't make any sense to do an IRA rollover. In such cases you'd be better off putting assets in a taxable account.

For instance, some 401(k) plans allow employees to make after-tax contributions, so only earnings will have to be taxed at the time withdrawals are made. We're talking about plans that precede the newfangled Roth 401(k) plans.

If you roll over these assets in an IRA, the after-tax money and earnings become commingled, and you'll forever have to take withdrawals on a pro-rata basis and keep track of the different monies on Form 8606. It's tedious and time-consuming.

Another exception to the rollover: If you have lots of company stock in your retirement plan, you may be eligible for a big tax break called net unrealized appreciation, or NUA. Net unrealized appreciation refers to the difference between your stock's value when it was originally contributed by your employer, and its market value at the time of distribution.

While it's wise to invest no more than 10 percent of retirement assets in company stock, sometimes employees wind up with a lot more. Stock bonus plans and profit sharing plans may hold significantly higher amounts of company stock.

"In that case you would not do the rollover, you would take the lump sum distribution," says Ed Slott, CPA, a noted expert on IRAs.

Here's how it works: You move the stock-in-kind to a taxable account and pay tax on the value the stock had at the point when it was contributed to the plan, rather than on all the growth it may have enjoyed since. You don't pay tax on the appreciated portion until after you sell the shares. At that point, you pay NUA tax at the lower capital gains rate rather than at ordinary income tax rates, even if you sell the shares a day after you set up the account. There are other stringent IRS rules you have to follow at the same time, though, so be sure you get guidance from someone who knows exactly what to do.

Do a direct rollover
Most of the time cashing out the assets is a bad idea. Likewise leaving your assets with a former employer rarely makes sense. It's hard to know how much you're paying in fees. On top of that, investment options are usually limited.