Avoid This Common Mistake When Switching Jobs to Secure Your Retirement Savings
Over 2-in-5 (41.4%) of employees are choosing to cash out their defined contribution 401(k) plans early, according to a study from the UBC Sauder School of Business. Cashing out your 401(k) early is problematic for multiple reasons: you’ll have to pay taxes and penalties, you’ll lose out on the benefits of compound interest, and ultimately, you may not save enough money to retire. Instead, you can keep the money in your employer’s plan, or you can transfer your assets to your new employer’s plan. Alternatively, you can roll your balance to an Individual Retirement Account (IRA) where you can continue growing your retirement savings tax-free until you make withdrawals in retirement. Americans still need more education on the benefits of 401(k) rollovers and the consequences of cashing out.