With the end of the year approaching this is the time when many companies announce layoffs. It’s also the time when a number of companies are offering pension buyouts to former employees. Moreover people are leaving their jobs all through the year creating rollover opportunities from their retirement plans on an ongoing basis.

While I’ve always been interested in this topic, several articles regarding some questionable tactics by some financial advisers. brokers, and registered reps concern me.

What is a Retirement Plan Rollover?

When you leave a job and have a balance in a retirement plan such as a 401(k), 403(b), 457, or even a pension plan that allows for a lump-sum distribution you have several options as to what to do with this money. One option is to roll the balance to an IRA account at a custodian such as Charles Schwab Corp. (SCHW ), Fidelity Investments, a brokerage firm, your bank, or any number of other custodians.

Other alternatives for your retirement plan dollars can include leaving the money in your former employer’s plan, rolling the balance over to a new employer’s plan if allowed and applicable to you, or taking a distribution. In the latter case the distribution will generally be subject to income taxes and potentially a 10% penalty if you are under age 59½. (For more, see: Tips For Moving Retirement Plan Assets .)

Benefits of a Rollover to an IRA

Rolling your 401(k) or similar account to an IRA can offer several benefits including access to a wider array of investment options than what would be available to you in your employer’s retirement plan. In addition, you may be able to reduce the cost of your investments depending upon the underlying investments in your old employer’s plan and the administrative costs incurred by the plan.

Additionally, this might provide an opportunity to manage these dollars in harmony with other investments you already have outside of your retirement plan.

Beware of “Toxic” Rollovers

This recent piece on the Bloomberg site. among others, detailed several examples of brokers and registered reps who trolled large organizations looking for rollover opportunities. A few examples of “toxic” rollover tactics you should avoid.

Rollovers to a high-cost variable annuity. There is much debate among financial advisers as to whether IRA money should ever be invested in an annuity product. An IRA is already growing on a tax-deferred basis, why is an extra layer of tax-deferred growth needed? On the flip side, if someone really wants to annuitize this money this can be a reasonable approach.

High-cost variable annuities should be avoided, however. By ‘high-cost’ I mean internal investment and insurance expenses in the 2.5 – 3% range annually. Even with decent underlying investment sub-accounts this type of expense ratio is difficult to overcome. These expenses can go a long way towards eroding your nest egg. (For more, see: Getting the Whole Story on Variable Annuities .)

Non-traded REITs and other illiquid investments. Non-traded REITs are securities issued by real estate firms that cannot be traded on stock exchanges like publicly traded REITs. Some of these non-traded REITs pay solid dividends but your money is generally locked up until the firm decides to make a distribution or to liquidate some or the entire fund. As an alternative, there are some excellent mutual funds and ETFs that invest in REITs, including some low-cost index choices all offering daily liquidity.

Proprietary brokerage house mutual funds. In many cases, registered reps and other financial advisers who earn all or part of their income via commissions are heavily incentivized to sell you mutual funds issued by their employer. Often these are high-cost, mediocre-performing investments. Worse is that some share classes carry up-front or trailing commissions that can greatly reduce the amount you have for retirement. (For more, see: Paying Your Investment Advisor: Fees or Commissions .)

IRAs that cost more than your company’s retirement plan. Many large employers offer very solid 401(k) plans that carry excellent ultra-low cost index fund options as well as inexpensive institutional mutual funds and similar options. Case in point is my wife’s plan with a large corporation. The Bloomberg article referenced a case where a broker moved client funds to a high-cost IRA with her firm when they would have far better off leaving the money in their former employer’s low-cost plan. (For more, see: Six Things Bad Financial Advisors Do .)

The in-service rollover pitch. I actually have had a couple of folks ask me about pitches they have received to take a portion of the money in their 401(k) and roll it over into what appeared to be a high-cost, gimmicky annuity product via their plan’s in-service withdrawal provision. These means that the annuity salesperson was trying to convince them to do a rollover while they were still working. This particular 401(k) plan had a menu of low cost, pretty decent investment choices.

The Bottom Line

When you leave a job, whether to move to another position, retiring, or for any other reason it is important to be proactive with the money in your retirement plan account. Leave it where it is, roll it over to your new employer’s plan, or roll it over to an IRA. In the last case it’s important to understand where the financial advisor is suggesting your money be held and just as important how it will be invested. Make sure the investments serve your best interests, not the advisor’s. (For related reading, see: Common IRA Rollover Mistakes .)