If you’re one of the millions of people who have received pink slips from their employers during these troubled economic times, things may look bleak. But there’s something you can take with you from your old job—your 401(k) account—that could hold the key to better times ahead. Though there’s no penalty for leaving your retirement funds where they are, you may be understandably reluctant to entrust the money to your ex-company, continue to pay what may be unreasonably high administrative fees, retain limited investment choices, and risk having uncertain access to your account if you decide to make changes in your investment choices.

So what are the alternatives? Participants in 401(k)s and other employer-sponsored retirement plans can normally choose from among three main options: taking a lump-sum distribution, opting for annuity-type payments, or rolling the funds into an IRA or a 401(k) at your new job. There are pros and cons for each possibility.

1. Lump-sum distribution. If you’re in desperate need of cash, this may be what you have to do. But it has several drawbacks. If you request a lump sum from your company, it’s required to withhold 20% for federal taxes (and sometimes additional state withholdings), and you could owe more than that if you don’t deposit the money in an IRA or another 401(k) within 60 days. You’ll owe income tax on the amount of the distribution (which might push you into a higher tax bracket), plus you’ll likely have to pay a 10% penalty if you haven’t reached age 59½, bringing the total tax you pay on the amount received to almost 50%. Finally, of course, you’ll be depleting your retirement savings well ahead of schedule.

2. Annuity-type payments. With this option, you’re still on the hook for tax payments and a possible early withdrawal penalty, but at least the tax liability will be spread out over the years you receive payments. Typically, the amount you get is calculated according to your life expectancy or the joint life expectancies of you and your spouse. If you choose, payments may continue until the death of the second spouse.

3. Rollover. This has obvious advantages. Not only will you have more investment choices, but the transfer—to a traditional IRA or to another employer plan at your new job—isn’t taxed, and your money can continue to compound on a tax-deferred basis until you make withdrawals during retirement. Just be sure to complete the rollover within 60 days of taking the money from your old 401(k), and keep in mind that your former employer will still automatically withhold 20% of your balance. To avoid that levy, which you can’t recoup until you file your tax return, arrange for a trustee-to-trustee transfer directly from your old account to the new one. Best of all, this option helps your money keep to its appointed task—saving for a secure retirement.