Many investors are on automatic pilot when it comes to contributing to their 401(k) plans. So as they approach retirement, some are confronting a choice they hadn't given much thought to before: Should they leave their nest egg where it is or roll it over into an Individual Retirement Account?

While there are benefits and drawbacks to both options -- an IRA may offer more investment flexibility, for example, while a 401(k) can be easier to tap in an emergency -- a wrong decision can be costly, further eroding savings that already have taken a beating in the bear market. Cerulli Associates, a financial-services research firm in Boston, expects 401(k) plans overall to decline 16% this year, and IRAs to drop 12%.

With that in mind, advisers urge investors to do their homework before making a rollover decision: Analyze the range of offerings in your 401(k) plan, envision when and for what reason you might tap your retirement savings and examine the tax consequences of both options, paying special attention to what happens if funds are rolled over incorrectly. For some retirement savers, it may be the first time they have given any significant thought to these kinds of issues.

"It's like asking people why they don't exercise -- it's just easier not to," says James Shagawat, a wealth-management principal with Baron Financial Group in Fair Lawn, N.J., who says many of his clients begin the retirement-planning process with multiple 401(k) accounts that they have accrued through various employers -- and then ignored. Inaction is common, he says.

For those contemplating the benefits and potential consequences of rolling over some or all of their 401(k) savings into an IRA, here are some things to consider:

Stock and Taxes

If you have a significant amount of employer stock in your 401(k) plan, think carefully before pursuing an IRA rollover. The IRS offers tax savings to certain 401(k) account holders who take lump-sum distributions of employer stock, says Natalie Choate, a Boston-based attorney specializing in estate-planning and retirement benefits. A rollover to an IRA would permanently extinguish that opportunity, she says.

Robert Neubecker

Here's how it works: You'll need to empty your entire 401(k) account to take advantage of the deal. Generally, such a lump-sum distribution is taxable as ordinary income -- currently a 35% maximum. If you withdraw $1 million, you could owe as much as $350,000 in income tax. But an employee who takes a lump-sum distribution of employer stock pays ordinary income tax only on the amount the plan paid for the stock -- known as the plan's cost basis.

So say you take a $1 million lump-sum distribution from your 401(k), $500,000 of which is employer stock. If the plan's cost basis of the stock was $100,000, you would pay income tax at ordinary rates only on the $100,000, and the additional $500,000 of other assets in your plan. The IRS considers the remaining $400,000 of employer stock "net unrealized appreciation" of employer securities. You would pay tax on that when you sell the employer stock -- but at long-term capital-gains rates, which max out at 15%.

Don't let the current market declines fool you into overlooking the possibility. "You may have significant appreciation that you're not thinking of -- especially if you're with a company a long time," says Ed Slott, an IRA consultant in Rockville Centre, N.Y.

Helping Heirs

Wanting to give heirs the opportunity to accumulate tax-deferred wealth is a substantial reason to consider an IRA rollover, says Mr. Slott.

Under a strategy known as "the stretch," the designated beneficiary of an IRA can take small, taxable distributions over the course of his or her life expectancy, while allowing the remaining funds to accrue on a tax-deferred basis. Tax laws allow many 401(k) plans to offer the stretch option, but most plans don't, says Ms. Choate.

Mr. Shagawat, the New Jersey-based financial planner, says he is working with a 14-year-old beneficiary of an $80,500 IRA, whose father died in his 50s. The client can take an annual $1,200 distribution from the IRA based on his estimated life expectancy of 68.9 years. The remaining funds will continue growing tax-deferred, to as much as $3 million, according to Mr. Shagawat's estimates.

The inherited IRA must be properly titled, says Mr. Slott, to include the name of the deceased, date of death and beneficiary's name. Tax benefits are lost if the beneficiary deposits the IRA funds into a personal IRA.

Choices, Transparency

The range of investment choices available through a 401(k) plan is an important factor to consider when contemplating an IRA rollover. Pran Tiku, a financial adviser in Waltham, Mass., says that even when the investment choices offered through an employer plan are good, "they're never unlimited or customized to what a person may need at the time."