Difficult economic times have led to layoffs, early retirements and more employees who must decide what to do with their retirement plan assets when they leave their company. Whats more, recent tax-law changes make the decision-making process even more complex by providing more options than ever before.

Employees leaving their jobs generally have four options with their retirement plan assets: 1) receive them in a lump sum; 2) leave them in the former employers plan; 3) move them into a new employers plan; or 4) roll them over into an Individual Retirement Account (IRA).

A lump-sum distribution likely will be the most costly option because the withdrawal will be subject to income taxes and possible IRS penalties. And keep in mind your employer will be required to withhold 20 percent of the distribution and send it to the IRS as a prepayment of the taxes that will be due. While some special strategies may apply if you choose to receive a lump-sum distribution, these are typically used in cases of retirement, not mid-career job changes.

If you are tempted to spend your retirement plan simply because it is not a lot of money, leaving it with your former employer can keep those assets locked away for the future. However, you will continue to be limited by the employers investment alternatives when you leave assets in that plan, which may limit your flexibility to develop an effective retirement-planning strategy.

Your former employers plan also will control when and how you access your retirement savings in the future. This may mean that distributions become available at some predetermined age, such as 62 or 65, and that those distributions could possibly be available only in limited amounts over a specified number of years.

Another alternative is to move your retirement savings to the plan of a new employer. In the past, moving retirement plan assets to a new employer was not always easy to accomplish because direct transfers were only permitted between like plans, for example, 401(k) to 401(k). But beginning this year, these barriers will be eliminated and you may be permitted to move assets between different types of retirement plans as long as you have willing employers on both sides.

If youre looking for maximum flexibility with your retirement-plan assets, a rollover IRA can provide the same tax-deferred advantages as leaving those assets with your former employers plan or moving them to a new employers plan. The benefit of rolling the assets into an IRA is that you gain access to a wider variety of investments and can take greater control of your income options. You will have access to the money in your IRA when you need it. In addition, IRA withdrawals before age 59½ can be structured in a way that the distributions are not subject to the 10 percent IRS early withdrawal penalty.

A rollover IRA also provides opportunities for other planning strategies, such as converting to a Roth IRA if you qualify. Roth IRAs potentially provide tax-free accumulation of earnings on your retirement savings and minimum distributions are not required at age 70½, as they are with traditional IRAs.

If you think you may find yourself in one of these situations, it may not be a bad idea to discuss your options with your financial advisor, before you find yourself in a position where you must take action on how to handle your retirement-plan distribution.

This article was provided by David Edmisten, AAMS

Financial Advisor

Wachovia Securities, LLC. Member NYSE/SIPC, a registered broker-dealer and a separate nonbank affiliate of Wachovia Corporation.