When leaving a job, departing employees must decide how to handle their 401(k) plan account. There are several options available.

•  Leave it where it is – If you’re happy with how your funds are being invested, you can leave them in your old plan. (Although, if your balance is less than $1,000, the employer can usually elect to cash it out for you or roll it over to an IRA if it’s less than $5,000.) You won’t be able to continue to contributing once you leave, but you will be able to see your money grow—it’s what’s called an orphan account. If you change jobs multiple times, you could end up having to track multiple 401(k)s. 

•  Cash it out – Taxes and penalties make this a less attractive option unless you desperately need the cash.

•  Transfer it to your new 401(k) – If your new employer has a 401(k), you can transfer your old account across to it. It’s advisable to compare the features of the two, as employers have a lot of leeway in designing their 401(k)s. Withdrawals from 401(k)s are penalty-free from age 55, as opposed to IRAs, where you must wait until age 59½.
Note - if transferring between 401(k)s, the check must be made payable to the new fund. If it is payable to you, you will be taxed as though it is a distribution, and your old employer has to withhold 20%.

•  Roll over into an Individual Retirement Account (IRA) – As long as you are not about to retire or are at an age where you’re obliged to take required minimum distributions (RMDs), this could be your best option. Let’s look at some of the benefits of rolling over to an IRA.

401(k) accounts are usually limited to a few mutual funds, likely a mix of equity funds and a couple of bond funds. On the other hand, IRAs will offer you a much more extensive range of investment options, including individual securities, bonds, exchange-traded funds (ETFs), and even real estate if it's income-producing. IRAs don't restrict the timing or the number of your transactions, but 401(k)s usually do.

The management and administrative fees associated with the funds offered by 401(k)s can make them expensive. But, large employers may have access to institutional-class funds with discounted fees compared to their retail counterparts. It’s good to look into the details.

You can also choose to roll over your 401(k) into a Roth IRA if the rules permit it. (Otherwise, you will have to roll over into a standard IRA and from there into a Roth.) Rolling over to a Roth IRA means you will pay taxes on the transfer and future contributions, but not on the funds you eventually withdraw. (With standard IRAs and 401 (k)s, it's the opposite.) If you expect to be in a higher tax bracket at that point, it can be beneficial to take the tax hit upfront. 

Also, there are no RMDs with a Roth IRA, whereas, with a standard IRA, you have to take distributions from age 72. And if you’re still working, you’ll be taxed at your prevailing tax rate. With a Roth IRA, you can get your contributions out before 59½ without penalties (although withdrawing your earnings will usually bring penalties.) With a standard IRA, both draw penalties. 

401(k)s are often designed to pay out one lump sum to the beneficiary upon the account holder's death. This can lead to income and inheritance taxes. IRAs offer more payout options, which gives you greater control.

If the rules of your old 401(k) permit it, you can leave some of your balance in your former company's 401(k) and roll the rest over into an IRA. This is a good option if you think you may need to make withdrawals before 59½. 

With employer 401(k)s, spouses must be the beneficiaries unless they sign a waiver. With IRAs, the contributor can name any beneficiary, and no consent is required from the spouse. In other words, rolling over from a 401(k) to an IRA means spouses lose the right to be the sole beneficiaries.

This article covers the broad concepts of rolling over a 401(k) account. Keep in mind that it is always advisable to consult your financial advisor before taking any action. Optimal retirement planning very much depends on your personal circumstances.