One of the main benefits that an employee can gain from signing up for a 401k retirement plan is that it can be used throughout his or her employment. In the event that the individual decides to change employers, there are four options available to the investor, all of which are outlined below:

The employee can leave his or her assets in the 401k retirement plan of the previous employer
Most 401k plan administrators will charge the investor various fees for record keeping and other services that have to do with managing the account, whether or not the investor is still with the company.

These fees can take up a huge portion of your net worth, particularly if you maintain several accounts with different employers.

The employee can apply for a 401k rollover to the 401k plan of the new employer.
This option is generally available only if the employee gets another job offer before he or she leaves their current employer.

This is the simplest option in most cases, and it may be the best alternative available to an employee. Knowing if this is the right choice should be a decision that is made based on the investment options available with the new 401k plan.

If you feel that the choices that are available to you are unacceptable, you may find that a 401k rollover to an IRA may be a far better alternative.

The employee can Complete a 401k rollover and transfer the assets into an Individual Retirement Account or IRA.In the majority of cases, completing a 401k rollover is the best choice for an employee who is interested in saving up for a comfortable retirement, since it allows the his or her capital to continue increasing tax-deferred, while still offering the advantage of giving as much control as possible over the allocation of assets.

This means that the employee will not be limited to the range of investments that are offered by the 401k plan provider. How it works is that the distribution of the current 401k plan assets is first ordered and reported on Form 1099-R of the IRS.

After the assets are received by the employee, they will then have to be contributed into the new retirement plan within sixty days, and this transaction is reported on Form 5498 of the IRS. Keep in mind that the government imposes a limit on 401k rollovers to once every twelve months.

An employee can cash out the proceeds and pay taxes as well as the 10% penalty.
This is by far the worse option that an employee can take, aside from not taking advantage of the contribution match program of an employer.

Unfortunately, as many as 66 percent of 30 to 39 year old employee who change jobs opt to take cash when leaving an employer, and as many as 78 percent of those in the 20-29 age group do so as well. This is unfortunate especially when you consider the loss of decades worth of tax-deferred compounding that the capital will earn with a 401k rollover.