As more and more people lose jobs in this recession, it's natural to focus on shoring up your day-to-day finances. But what about your workplace 401(k)? If you've drunk the retirement planning Big Gulp, your 401(k) may be one of your largest assets. So it pays to understand your 401(k) options in the event of a layoff.

Cashing out your account and getting a check should be your very last resort. What will you live on when you retire? Also, in most cases you will have to pay taxes plus a 10 percent early withdrawal tax penalty on that money. Rule of thumb: Take your current balance and assume you'll keep roughly 60 percent of it.

There are some ways to unlock the 401(k) while avoiding penalties, but they are complicated.

For Ben Marks' clients in their 50s, a layoff may turn into early retirement, or the end of a career job that paid much more than future opportunities might. Marks, chief investment officer of Marks Group Wealth Management in Minnetonka, uses two strategies to avoid the 10 percent penalty for taking money out of retirement plans such as a 401(k) or IRA before the magic age of 59.5. Both are somewhat complex, and I can't go into all the details here, so speaking with a financial professional before giving either a try is wise.

First, there are so-called 72(t) distributions. You can avoid the 10 percent early distribution tax if you take "substantially equal payments" out of your retirement account. There are different ways to calculate these equal payments and several 72(t) calculators are available to help you figure out which one suits your situation. But briefly, the minimum distribution method, as the name suggests, requires you to tap the smallest amount of money out of your plan. The fixed amortization and annuitization method calculations typically result in larger withdrawals, Marks said.

Here's the major drawback of this strategy: The distributions must continue until you're 59 1/2 or have been taking distributions for five years, whichever is longer. That's why few planners suggest this option for younger investors. Even for older workers, "it's never an ideal situation, but sometimes it's a necessity," Marks said. But remember. If you stop the withdrawals, you'll retroactively pay the penalty on each monthly withdrawal you've made.

Another little-known option: If you leave your employer after the year you turn 55, or later, you can withdraw 401(k) dollars out of your plan without paying the pesky 10 percent. This exception doesn't apply to IRAs. Marks prefers this method over the 72(t) method for those who qualify because of the flexibility. "You can just take a one-time distribution; you wouldn't be committed for five years," he explained.

You may also avoid the 10 percent penalty if you are disabled or have excessive medical expenses.

Check out IRS Publication 575 for more details. Warning: Will make your head spin.

Another worthwhile tip: Folks who have 401(k) money in company stock should be aware of net unrealized appreciation -- a strategy that can lower their tax bills, said Nate Wenner, president of the Financial Planning Association of Minnesota. Instead of rolling over the stock into an IRA, a former employee would take a lump sum distribution of the stock and only pay ordinary income tax on the basis, or the original cost paid by the employer. The difference between the basis and the fair market value is taxed at long-term capital gains rates when the stock is sold, lowering a person's overall tax bill.

Rollover realities

Even if you have no intention of tapping your retirement funds, a job loss brings up questions about what to do with the account.

When Dan Dorval's laid-off clients come to him for 401(k) advice, he looks at the size of the 401(k) balance. If you have a small balance, he is more likely to suggest that you keep the money in your former employer's 401(k) because expenses can be high for small IRA accounts. "Even a $15 IRA fee can impact a $2,000 account," said Dorval, a certified financial planner and president of Dorval and Chorne Financial Advisors,.

However, Congress has been examining 401(k) fees and calling for greater fee transparency. So don't just assume that an IRA charges higher fees than your workplace retirement plan.

Expenses are a moot point if your former employer refuses to keep small 401(k) balances for former employees. In that case, rolling it into an IRA or a retirement plan with a new employer are your options.

If an account balance is $10,000 or higher, Dorval generally prefers rolling it over to an IRA because IRAs offer more investment choices and flexibility.

Rolling over a retirement plan "is incredibly complicated for most people," Dorval said. To make sure you're transferring your retirement plan without hiccups, talk to your former employer, the financial firm that holds your 401(k) and the company where you're opening the IRA.

Moving money around takes time, and in a volatile market where the Dow Jones industrial average can move 3 percent in a day, bad luck could have you selling low and buying high, depending on when the move is complete. Some advisers argue that in the big scheme of things, a few days out of the market doesn't matter much. But Dorval says that if there's no pressing reason to make your move now, "I would definitely consider holding off until we get into a period of less volatility."

Whenever that will be.

Where's your retirement plan? Tell Kara McGuire • 612-673-7293 or