Money magazine advises investors to consider transferring old 401(k) accounts into an IRA. The article begins by cautioning against the liquidation of one's 401(k) account.
"[L]iquidating a 401(k) can be tempting for many people, especially if money is tight in the wake of a job loss. A recent survey by consulting firm Hewitt Associates shows that, layoff or no, nearly half of people with 401(k)s who leave their job take the money and run.
But that's typically not a very good choice. Aside from the fact that such a move will trigger income taxes and possibly a 10% penalty, taking the cash now could seriously jeopardize your retirement security. If you've still got a ways to go before retirement, raiding your savings early means you'll have a much smaller nest egg when you eventually retire. And if you're close to your retirement date, cashing out makes it less likely your savings will last as long as you do."
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