If I change jobs a lot, should I consolidate my retirement accounts?

The biggest headache of leaving your retirement savings in your old employer's retirement plan is trying to keep track of multiple retirement accounts. But if you are the kind of highly organized person who doesn't mind receiving and deciphering multiple earnings summaries, consider the advantages of leaving your 401(k) savings right where they are.

Before you quit your current job, you need to check with your human resources department about the company's "vesting" policy. One of the greatest perks of a 401(k) is that your employer matches a percentage of your contributions. But at some companies, those matching employer contributions are deleted if you leave the company before you are "fully vested" [source: Brandon].

Vesting policies differ from company to company. Some use a gradual scale where you get to keep 25 percent of matching funds for each year with the company. Others don't give anything if you leave before four or five years [source: Investopedia]. If you are very close to being fully vested, it might be worth sticking with your current job for a few more months to save potentially thousands of dollars in free money.

It might be tempting to roll over your old 401(k) money into an IRA, but there's a catch if you plan on retiring early. With a traditional IRA, if you retire at 55 and want to withdraw money from your account, you will most likely be slapped with an early withdrawal penalty. (With a Roth IRA, you can withdraw the money at any time since you already paid taxes on it.) There are exceptions for first-time home buyers, educational expenses and certain medical expenses. With a 401(k), however, you can withdraw money penalty-free if you retire at age 55 or older [source: Anderson].

Now let's look at the advantages of consolidating your retirement accounts in a new 401(k) or a rollover IRA.

The huge advantage of consolidating your old and new 401(k) accounts when you change jobs is that all of your money is in one place. You don't have to keep track of as much paperwork, and it's easier to balance the diversity of your portfolio if it's all right there on the same investment summary. You may also save money on fees if they are lower at your new 401(k) versus your older one. If you decide to move the money out of your old 401(k), you have two options: transfer it into a 401(k) at your new job or roll over the funds into an IRA.

Obviously, the first option is only possible if you already have a new job and your new company offers a 401(k) plan. The most important thing to understand when moving money from one 401(k) to another is the difference between a transfer and a rollover.

In a transfer, your old company sends a check directly to your new company and the money never passes through your hands. That excludes you from having to pay income tax on that money.

In a rollover, however, your old company makes the check out to you. Now it's your responsibility to deposit the full amount in your new 401(k) within 60 days or the money is taxed as income and you are slapped with an early withdrawal penalty if you're younger than 55. To make things more complicated, your old employer has to withhold 20 percent of your account balance, which will be returned to you as a tax refund. In the meantime, you need to come up with that 20 percent from your own savings in order to deposit the full account balance in your new 401(k). So remember: "Transfer good. Rollover bad."

If your new job doesn't offer a 401(k), or you don't have a new job yet, your other option is to roll over your old 401(k) funds into an IRA. In this case, "rollover" isn't a four-letter word. The money is sent directly to the IRA fund, and you aren't on the hook for any taxes. Most major investment firms offer rollover IRAs, although the fees vary, so shop around.