Leaving Your Job? Don't Forget Your 401(k)
How to decide what to do with your 401(k), plus how to handle a rollover.
Nearly half of U.S. employees cash out of their 401(k) accounts when they leave their jobs, according to a recent survey by Hewitt Associates. Hewitt reports that the figure--46%--has remained virtually unchanged since 2005, despite attempts to raise awareness about the penalties of taking money out early.
The study found that young workers were the most likely to take money out of their accounts, with 60% of workers in their 20s cashing out. But the numbers aren't much better for those who have been in the workplace longer--47% of those in their 30s and 43% of those in their 40s cash out their retirement savings when they leave their jobs. The penalties for early cash-outs are severe--you will owe income taxes on the entire amount, and those cashing out before age 59 1/2 face an additional 10% penalty.