If you're like most people, you'll switch jobs several times before you retire -- 10 to 12 times, on average. And if you're like a lot of those people, you'll leave a trail of retirement-plan balances in your wake. Consolidating all of those balances in a rollover IRA is simple to do, and it can make your portfolio easier to manage while giving you many more options and preserving all of the tax-deferred benefits of your 401(k).

Miss you
Leaving money in a former employer's 401(k) is great -- for your old employer and its 401(k) plan provider, who will be happy to have the assets (and the opportunity to charge fees on those assets) indefinitely. And if you have most of your retirement savings in a single plan, and that plan happens to have a self-directed brokerage feature with low fees and relatively few restrictions, then it might make sense to leave your money in your old plan. But most plans don't have such a feature, and given that the current trend among 401(k) plan sponsors is to reduce the number of options in plans in an effort to make things simpler for less-informed plan participants, it's not a sure thing that the plans that have a brokerage feature will continue to have one indefinitely.

Gimme shelter
Here at The Motley Fool, we're in favor of having you take as much control of your investments as you can. And to take control, you need flexibility to choose from as many stocks and mutual funds as possible. A rollover IRA allows you to do nearly anything you'd do with a normal brokerage account (aside from trades that require margin, such as short sales), and you get to do it tax-deferred, with no taxes to worry about until it's time to withdraw -- at which point your withdrawals are taxed as ordinary income. So instead of having a small selection of mutual funds, you can choose from stocks like Motley Fool CAPS favorites Medtox Scientific (NASDAQ:MTOX) and Lubrizol (NYSE:LZ), strong dividend payers like Johnson & Johnson (NYSE:JNJ) and Coca-Cola (NYSE:KO), or growth winners like Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL). If you prefer mutual funds, you could have access to thousands -- including whole families of funds from leading low-cost providers such as Vanguard and T. Rowe Price (NASDAQ:TROW).

If you have several old 401(k) balances floating around, there's another, more subtle benefit to a rollover IRA: Having all of those balances in one place makes it much simpler to work with them as a single portfolio. And if you're like me, this simplicity means you're far more likely to implement a cohesive portfolio strategy, stay on top of it, and make changes as required -- all of which is much better than leaving your balance in some growth fund you chose years ago at the peak of the dot-com boom and may or may not be performing well in today's very different market.

I recently set up a rollover IRA, and I was pleasantly surprised by the simplicity of the process -- two short phone calls, a one-page form, a few days' wait, and boom, there it was, ready to go. Nearly all discount brokers offer rollover IRAs, though fees and service levels differ (compare them in the Fool's IRA Center, and don't forget to check current fee levels), and it's rarely a complicated process. A few things to watch out for:

  • Make sure your old plan provider knows you are moving your balance to an IRA, not withdrawing it -- ask for a "direct transfer" (or a "trustee-to-trustee" transfer) to your new IRA's provider. (The alternative is that you'll get a check with some money withheld, and you'll have a headache. See why.)
  • If you have an existing relationship with a discount broker, it's simplest to have that broker set up your rollover IRA. But take a few minutes to compare costs and features among leading providers -- your choice to use your existing provider should be an informed one.
  • If you're holding company stock in an old 401(k) plan, you may be able to save a lot of money in taxes by employing a net unrealized appreciation strategy. Stop everything and read this before initiating a rollover from that plan.
  • Note that a rollover contribution doesn't count toward annual IRA contribution limits -- you can (and should!) still make your regular contribution.

One last thing: While enjoying the investment flexibility of your new rollover IRA, don't forget to keep investing in your current employer's 401(k) -- at least enough to collect the full amount of your current employer's matching contributions. Your retired self will thank you.

Investing the right way is essential for the success of your retirement plan. For advice on how to put together the best retirement portfolio for you, take a 30-day free trial of the Fool's Rule Your Retirement newsletter service. You'll find simple directions that will set you on your way to a successful retirement.

Fool contributor John Rosevear looks nothing like Keith Richards but did once play guitar in a Stones cover band. He owns shares of Apple but has no interest in any of the other companies mentioned. Coca-Cola is an Inside Value pick, and Johnson & Johnson is an Income Investor recommendation. The Fool's disclosure policy is a knight in shining armor coming to your emotional rescue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.