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 40
1(k) savings by cashing them out.
Studying this phenomenon were researchers Yanwen Wang, Muxin Zhai, and John Lyn
ch 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 ta
ke 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 p
lan, rolling over to an IRA, or cashing out.