Losing your job stinks -- there's no way around that. Still, odds are that your friends will rally 'round and annoy you by pointing out the bright side:

  • "That was a terrible place to work, anyway."
  • "Now you won't have to deal with that ridiculous boss."
  • "You'll end up in a better job!"

Forgive me, but I'd like to chime in with a bright side of my own: Now you can take more control of your retirement, by rolling over your job's 401(k) or 403(b) into an IRA.

Many people just take the cash and run. Don't be one of them. Cashing out can badly harm your retirement, even if you just have $20,000 in the account. If that $20,000 grows at the market's historic average annual rate of 10% for 20 years, it will top $130,000. (Even if it only grows at 8%, you'll still have more than $90,000.)

Choices galore
401(k) accounts often give you few choices about where you can invest your money. They may offer a handful of stock funds, perhaps only one or two that meet your desired level of aggressiveness and risk-taking, along with a handful of bond or money market funds.

In short, their lineup may not include promising funds such as the market-beating BlackRock Global Allocation A (MDLOX) fund. Although it sports a steep expense ratio, it also has a 10-year average annual return around 9%, and it holds plenty of well-known stocks like Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), and Bristol-Myers Squibb (NYSE:BMY).

While the fund of your choice may not be available through your 401(k), roll over that account into an IRA at a brokerage firm that offers a wide array of funds, and suddenly your investing options multiply.

Similarly, let's say that you're hankering to invest directly in some solid dividend payers, having learned the secret of dividends -- their ability to contribute more than 40% of your portfolio's total return. Maybe you're really itching now, because you realize that these days may be presenting the opportunity of a lifetime. Maybe you found a set of promising, well-known stocks with healthy dividend yields, like:

Company

Recent dividend yield

Colgate-Palmolive (NYSE:CL)

2.6%

Consolidated Edison (NYSE:ED)

5.7%

PepsiCo (NYSE:PEP)

3.3%

Honeywell (NYSE:HON)

3.3%

If you stick with your 401(k) and want a piece of these companies, you're probably out of luck. In an IRA, you're free to invest in these stocks and more.

Better yet, fees can be considerably lower when you invest through an IRA -- a little change that can make a big difference. Suppose you're earning 10% over 25 years on a $20,000 investment. Pay a 1% annual fee on those earnings, and you'll end up with $172,400. Add just half a percent to that annual fee, and your eventual nest egg shrinks to $153,700 -- a full $18,700.

Don't neglect that 401(k)!
The takeaway here should be clear -- don't leave your 401(k) money with your former employer. (And don't cash it out!) Roll it over into an IRA that you control, and make the most of your newfound investing freedom.

If you're not yet out of a job, but you think there's a good chance you will be in the near future, try socking away as much as possible into your 401(k) before you leave -- assuming you have enough emergency funds set aside to tide you over while you're out of work. Check with your human resources department -- if you're 50 or older, your maximum allowed contribution for 2009 may top $20,000, and you may be able to funnel extra money into your account during your last few months on the job.

In these scary times, be sure to make the most of your 401(k). If you'd like to set yourself up for an unpainful retirement, try our Rule Your Retirement newsletter service for free, with full access to all past issues. It regularly offers recommendations of promising stocks and mutual funds, too.

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Longtime Fool contributor Selena Maranjian owns shares of PepsiCo and Johnson & Johnson. PepsiCo and Johnson & Johnson are Motley Fool Income Investor selections. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.