The average American changes jobs 12 times in their lifetime. With each new job comes new offices, new co-workers – and possibly a decision about what to do with the 401(k) plan they started at their last job.

Selecting the right course of action for what becomes of that money can be crucial because the 401(k) has essentially replaced pensions as an employer-sponsored retirement savings vehicle.

“You have to look at where you are in life,” says Christy Smith, founder of Presley Wealth Management and an Investment Adviser Representative. “If you’re in your 40s with many working years left, it might be better to roll the 401(k) into your new company’s plan. If you’re just a few years from your planned retirement, putting the money into the new company’s plan is possibly not the best thing.”

Smith outlines five 401(k) options to consider when taking a new job:

• Direct rollover to the new company’s 401(k). A direct rollover is a transfer of assets that allows those retirement savings to grow and remain tax-deferred without interruption. It goes directly into the new employer’s retirement plan without ever passing through your hands. “If you’ve got at least another 10-12 working years left with the job change, this is often a preferred route to take,” Smith says. “One of the advantages is a 401(k) offers lower-cost or plan-specific investment options.”

• Direct rollover to a traditional IRA. People roll over a 401(k) to an IRA to have wider investment options and more control over their money. You don’t pay taxes on IRA contributions or gains until withdrawing the money, which you can do starting at age 59 ½. “With a traditional IRA you contribute pre-tax dollars, and that money grows tax-deferred,” Smith says. “This might be a better option for those closer to retirement. At that point you want lower-risk investments, and moving your money from a 401(k) to an IRA will give you a variety of fixed-income options.”

• Convert to a Roth IRA. Contributions to a Roth are taxed when they’re made. The upside is you can withdraw contributions and earnings tax-free at age 59 ½. “If you have a relatively small 401(k), maybe it’s worth it to convert to a Roth and pay the taxes up front,” Smith says. “I certainly think Roth conversions can be a great situation, but they have to be done delicately.”

• Leave it behind. Leaving your money in your former employer’s plan may make sense if you like the investment options it offers, or if you’re taking time to explore other options. “The downside is you’re no longer contributing to it,” Smith says.

• Cash it out. Smith says this is almost never a good idea, due to the tax implications and the hit your overall retirement fund takes. “People who have financial distress will take the 401(k) distribution, but if there’s any way to avoid that they should,” she says. There’s a 10 percent early withdrawal penalty if you are under age 59 ½. The exception to this rule is if you are leaving or losing a job at age 55 or later, but the distribution counts toward that year’s taxable income.

“Whatever one decides,” Smith says, “the key considerations are continuing the tax-deferral of these retirement funds for as long as possible, and to avoid current taxes and penalties that can take big chunks out of what you’ve saved and invested.”

About Christy Smith

Christy Smith is the founder and principal of Presley Wealth Management, which she opened in 2006. An investment Adviser Representative, she co-hosts a weekly radio show, “Your Money Matters,” and has appeared in The Wall Street Journal, U.S. News & World Report, MarketWatch and Kiplinger. Smith is the author of the book, Plan, Protect, Preserve, holds a life and health insurance license in Louisiana, passed the Series 65 securities exam and earned a Certified in Long-Term Care (CLTC) designation.