When changing jobs, avoid cashing out your 401(k): Research Exposes Costly Mistake

Cashing out of employer-sponsored retirement plans is a costly financial error.

The likelihood of this error is higher than anticipated, and employers may unintentionally make it worse.

Before retirement age, withdrawals from 401(k) plans result in significant taxes and fees.

According to a research, 41% of departing employees completely deplete their 401(k) savings by cashing them out.

Studying this phenomenon were researchers Yanwen Wang, Muxin Zhai, and John Lynch Jr.

Over 162,000 employees' withdrawal habits from 28 retirement plans between 2014 and 2016 were examined.

85% of employees who access their retirement funds after quitting their jobs take the whole balance out.

In 2022, the average 401(k) balance was $27,376. This highlights the effect of cashing out.

When quitting a job, options include leaving money behind, switching to a new plan, rolling over to an IRA, or cashing out.