How do you transfer from a 401k to an IRA? I work for a very small company, so my 401k investment choices are limited and expensive. I'd love to have a cheap index fund option.
I've known too many people who change jobs and just leave the 401k they had in their previous job with the company that is still managing the 401k for the old company. There can be (and often are) different rules for former employees that can be (and sometimes are) much more advantageous to the bank. When I left Sun the 401k moved all of the funds into a 'guaranteed interest' fund (aka a bond fund) with a 3% management fee. It was pretty egregious.
I wonder what it would take to add a brokerage window (self-directed) option?
A self-directed option in a 401k isn't really possible as far as I'm aware, since you're limited to mutual funds. They don't want people "gambling" with their 401k money by betting on individual stocks.
Still, given the tax advantages, you're likely to come out ahead in the long run in a 401k compared to a taxable brokerage account. Just pick the funds with the lowest fees.
Don't confuse the "plan documents" (aka the terms of service written by the bankers with their hands in your pocket) with the IRS regs. Some plans do allow in-service rollovers, and to be sure, you should make a request in writing.
When rolling over money, have the money sent directly to the other retirement account. If the check comes to you first, then the payer has to withhold 20%, which you won't get back until after you file your taxes and prove the funds were in fact rolled over. And, of course, you would need to 'front' that 20% in order to get the whole amount rolled!
Publication 560 defines when distributions from 401(k) plans can be taken (page 18): http://www.irs.gov/pub/irs-pdf/p560.pdf
A rollover is nothing but a distribution and re-deposit into a qualifying account.
1. Call and ask what funds are eligible to be rolled over in a self-directed IRA. Some funds allow you to, some don't. For some weird reason, my old employer allowed me to rollover my 401k match but I couldn't touch my own money.
2. Most 401k plans off a brokerage account option. You may have a crappy selection of funds offered, but with most brokerage accounts you can invest in most anything (stocks, ETFs, other mutual funds). However, again, it will likely be limited, my own 401k brokerage account doesn't allow me to invest in REITs. (?!?!)