401(k)s and IRAs: Grow your money, shrink your taxes

If you decide to change jobs, don't cash out your 401(k). Instead roll it into an IRA or transfer it toyour new employer's plan.

You can open a rollover IRA at virtually any bank, fund company or brokerage firm. What you get in return are more investment choices and greater flexibility. IRAs also give you more leeway in naming beneficiaries and arranging withdrawals.

There are some benefits to rolling it over to your new employer's 401(k). First, you may borrow from your account, an option that is not available with an IRA. Also if you retire at age 55, you maytake money out of your 401(k) without paying a 10 percent penalty, whereas you may not empty an IRA penalty-free until you turn 59-1/2, except with rare exceptions.

One final option is if your 401(k) at your former is employer is worth more than $5,000 you may leave it to collect later.

If you do decide to rollover you retirement account, have your former boss make out a check to your IRA trustee or the administrator of your new 401(k). If the check is made out to you, 20 percent will be withheldfor taxes in addition to a 10 percent penalty. To avoid paying taxes and the penalty, you must deposit the check - plus the 20 percent that was withheld - in a new IRA in 60 days. So don't even go there.