Downsized Workers Facing A Variety of 401(k) Options.

E-TRADE, the online brokerage firm, is running some pretty aggressive ads to attract accounts. They're aimed directly at the tens of thousands of people who are currently leaving their jobs.

Some workers have quit voluntarily to do something else. Thousands more have been laid off.

E-Trade is interested in what you do with your 401(k) when you leave your job. You have three options:

* Take the cash from your 401(k) and spend it. But please don't. You'd owe taxes and probably a 10 percent penalty on the money. Even worse, you'd be throwing away all those future years of tax-deferred growth.

* Leave the money in your ex-company's plan. For this, you need more than $5,000 in vested benefits in the account.

* Roll your 401(k) into an Individual Retirement Account. The IRA could be at a bank, mutual fund or brokerage firm. You can manage the money yourself or hire a planner to manage it for you.

E-Trade wants you to switch to its own rollover IRA. To that end, its advertisements play on what it assumes are your bitter feelings about your former company. It portrays your old colleagues as lazy, stupid, backbiting, insincere and unhappy in their work.

The message is, "Get your money out of the hands of those dummies! Bring it to us."

But don't let your decision be driven by your ire. After all, your colleagues (good and bad) aren't running your 401(k) account. It's invested in mutual funds run by independent managers and perhaps in the company's own stock.

Sate haven

There are pros and cons to leaving the money in your ex-company's 401(k). First, the advantages:

The plan is generally a safe haven for people who don't know much about investing. Companies offer a prudent mix of diversified mutual funds, invested in stocks and bonds.

At large companies, the price of managing money is low. An independent JRA might cost you more in fees and investment expenses. The more you pay, the less money accumulates in your account.

Here are the disadvantages of leaving your money in your former company's 401(k):

Your account might contain a lot of company stock that you're not allowed to switch into mutual funds. That's a risky position. With an IRA, you could diversify.

Watch fees

If the company is small, a stockbroker or insurance firm might administer your 401(k). Your costs might be high - maybe 1 percent to 2 percent.

The fees come directly out of the plan, so you might not realize how much you pay, said Stephen Butler of Pension Dynamics n Lafayette, Calif. You'd raise your returns by shifting to an IRA at a low-cost mutual-fund group.

There might be restrictions on when and how you can take money out of the 401(k). For example, you might have to take a taxable lump sum if you want distributions before age 59 and a half, said Ted Benna of the 40 1(k) Association in Bellefonte, Pa. An IRA would be a better choice.

Your company might be taken over, complicating the 401(k).

IRAs are definitely better for people who don't expect to use all the retirement money they've built up - especially if you'll leave the money to someone other than your spouse (for example, your children).

If a spouse inherits a 401(k), he or she can roll it into an IRA and make lifetime withdrawals. Slow withdrawals allow more money to stay in the plan and grow tax-deferred.

But when children or other beneficiaries inherit a 401(k), they normally have to withdraw the money over a maximum of five years, said tax attorney Seymour Goldberg in Garden City, N.Y. With large 401(k)s, their tax could be huge.

So retirees should generally get out of their company's plan and into an IRA. Under new IRS rules, when children inherit an IRA, they, too, can stretch out the withdrawals over their expected lifetimes.