Employees, it seems, are a lot easier to move than 401(k)s.

In recent years, employers and plan providers have dramatically improved the portability of their retirement accounts. Many, for instance, have reduced the time it takes for an account to move from one plan to another. A decade ago, it could take months to transfer the money, but now can take just days to a few weeks. Also, employees have more options -- 401(k) money can be moved into a new 401(k) or any traditional individual retirement account, not just a designated rollover IRA.

But for many employees rolling over a 401(k) can still make for a pretty bumpy ride. Among the common gripes: Former plans hold onto accounts for months after a requested rollover, mistakenly move the money into taxable accounts or mail checks directly to the ex-employees rather than to the new plans. And unbeknown to many job switchers, if the checks are signed over to them and don't get deposited in a new tax-deferred retirement account within 60 days, that money is subject to income taxes and a 10% early-withdrawal penalty. In addition, many people aren't aware of the pitfalls or penalties of leaving money in an ex-employer's plan or cashing out.

"This is a major event in your life," says Ed Slott, an IRA expert who runs an accounting firm in Rockville Centre, N.Y. "The rules are complex, and one mistake may be irreversible."

Here, then, are answers to some basic questions about what to do with a 401(k) account when changing employers.

What are Your Options?

There are four options when leaving a job: roll the account into a new 401(k) or IRA, leave it in the old plan or cash out.

How much action is required on your part depends on the option you choose, the value of your account, and the protocol of the employer and/or investment firm managing the plan.

The federal government is slowly tightening rules on how employers must handle 401(k) accounts once an employee leaves, but the process is still patchy and gives employers leeway to set their own rules in many instances. The Department of Labor is close to finalizing a rule that could make employers automatically roll any 401(k) accounts worth $1,000 to $5,000 that get left behind into IRAs unless the ex-employee elects otherwise.

Currently, employers must give former employees with less than $5,000 in their plans notice that they need to do something with the account. But if nothing is done with the account, they can cash employees out or let them stay in the plan. Any account over $5,000 can usually stay in the old plan unless or until the participant requests that it be moved.

A 2003 study by Hewitt Associates analyzed data of nearly 160,000 employees who left jobs in 2002 and how they handled their 401(k) money. The market-research firm found that 80% of workers with more than $5,000 in their accounts either left the money in the old plan or rolled it into a new tax-deferred retirement plan, usually an IRA. The remaining 20% cashed out. But 87% of workers with accounts of less than $5,000 cashed out; only 13% rolled over.

Which Option Is Right for You?

Many financial advisers recommend moving an old retirement plan into either a traditional IRA or a new employer's 401(k) plan. For most people under age 59½, it's sensible to keep the money in such accounts to avoid paying premature taxes and a 10% penalty on early withdrawals.

Many advisers prefer traditional IRAs because they typically offer more investment options and greater flexibility on withdrawals. For instance, first-time home buyers can take out penalty-free withdrawals from an IRA to use for a down payment, but 401(k) plans let plan participants only take out a loan for their first homes that must be repaid before the account is cashed out or gets rolled into a new account. If the loan can't be repaid, it's treated as an early withdrawal.

For many account holders, though, leaving the money in the old 401(k) seems like the easiest and safest choice. But it's also too easy to lose track of an old account or encounter problems retrieving money if the business fails or merges with another company.

Rick Meigs, president of 401khelpcenter.com LLC, a Portland, Ore., organization that consults on 401(k) issues, says he talks with "dozens upon dozens" of people attempting to track down old accounts from past employers, but it's often difficult since people move and companies sometimes switch plan administrators. "I suspect, just anecdotally, there's a lot of unclaimed money sitting in 401(k) plans simply because employees decided to leave it there and lost touch with it," he says.

Bill Quinton, a financial adviser in Corpus Christi, Texas, had a client who waited several months to retrieve her $9,200 401(k) account after she stopped working for a severely ill doctor who closed his practice. The doctor had forgotten to name someone else trustee of the plan before he grew incapacitated, and the client had to wait several months to get the money.

Cashing out is the option usually taken by younger people with relatively small account balances. Alicia Munnell, director of the Center for Retirement Research at Boston College, warns that people who cash out plans early often reduce their chances of saving enough by retirement. Most of the money, she says, gets used to pay bills and other expenses.

How Do You Ensure a Smooth Rollover?

Typically, the easiest way to get a 401(k) account rolled into a new retirement account is to have the investment firm managing your new account handle the rollover. This usually requires filling out paperwork requesting a direct rollover. This kind of transfer, also called a trustee-to-trustee transfer, is best done before leaving a job, since it can take several weeks to months for the transfer to finalize. But it's not necessary. Most people can leave the money in the old plan until they've decided what to do with it.

A potential hurdle, however, is getting the firm managing your old account to pass the money along. Many firms dislike or even refuse to send retirement-plan money to other retirement plans, says Ellie Deskin, senior partner of Lifetime Investment Management, a financial-advisory firm in Troy, Mich. Instead, they'd rather mail checks to former employees and let them deal with getting the assets secured in a new account. "They're taking the burden off themselves," Ms. Deskin says.

In this situation, she says, the employees should tell the plan they want the check made out to the new 401(k) or IRA's trustee, rather than to themselves. So it's best to line up the new account before closing out the old one.

One unavoidable glitch is that some smaller 401(k) administrators make distributions only once a year. So even if employees request to transfer accounts 10 months before that period, they will have to wait until the distribution date. About 7% of plans let employees close out accounts only once a year, says David Wray, president of the Profit Sharing/401(k) Council of America, a Chicago-based industry group. About 80% of companies access their plans daily and allow employees to close their accounts within a short time. The remainder allow distributions several times throughout the year.

With accounts worth hundreds of thousands of dollars or more, it might be wise to hire a financial adviser who specializes in retirement accounts. Such advisers should know all the rules and the best ways to avoid potential pitfalls, says John Chambers, chief executive of Chambers & Associates, an estate- and retirement-planning firm in Grand Junction, Colo.

What If the Money Ends Up in the Wrong Place?

The Internal Revenue Service gives account holders 60 days from the time the old account is closed to transfer money into a new account without incurring taxes and penalties. Any missteps -- whether a check is made out to an employee instead of the new trustee, the old plan mistakenly cashes out the account or the money is transferred to a taxable account -- can usually be resolved within that time.

If the account is cashed out, it's the responsibility of the account holder to deposit the money in the new IRA or 401(k) plan. But if it ends up in a taxable account, usually the investment firm will correct the transfer after being contacted about the mistake. That's why it's wise to follow the process closely to ensure that it's done before the 60-day window expires.

If the check is made out to the employee, the old plan typically withholds 20% of the total amount as estimated taxes, as if the person cashed out. If the money gets transferred to a new account in 60 days, the tax withholding is refunded in the next year's tax return. In the meantime, the plan participant must compensate for the 20% portion withheld when putting the money in the new account -- also within the 60-day window -- in order to not pay taxes and the 10% penalty on it.

If, for whatever reason, the money isn't deposited into the proper account within the 60 days, you can file an appeal with the IRS asking that any taxes and penalties be waived. But the process can be time consuming and costly; it usually requires hiring a lawyer and paying an IRS filing fee. And it can take several months for the ruling to be made. Mr. Slott, the IRA expert and accountant, says the IRS has made more than 50 rulings on this issue so far.

And don't expect you'll always win, especially if it was your mix-up. "The IRS is pretty unforgiving of that," says Ms. Deskin of Lifetime Investment Management.