Almost half of Americans are cashing out their 401(k) plans when changing jobs.
A financial planner KSL-TV talked to said that’s the last thing you should do, no matter how desperately you need the money.
Here’s what she recommends you do instead:
Since the pandemic, tens of millions of Americans have quit their jobs. The last thing people are thinking about is their 401(k), but financial experts say it should be part of their moving plans.
“You need to work with a plan administrator and make sure that you do not touch the money,” said Susan Speirs with the Utah Association of CPA’s.
That means no cashing out your 401(k). You’ll have to pay taxes and penalties and lose out on the benefits of compound interest. Bottom line: You may not save enough money to retire.
“We know that everyone is struggling with inflation,” Speirs said. “The thing that’s heartbreaking about it is if you’re under 59.5, you get that 10% penalty, plus you pay income taxes on whatever you withdraw out.”
She suggests leaving it where it is or roll it over to your new employer’s 401(k) on a pretax or after-tax basis.
For example, Individual Retirement Accounts help people grow their retirement savings tax-free until they make withdrawals in retirement.
“We’re not staying in the same job forever, so we see Americans that are job hopping every two, three, five years. You can get to a point where you have so many 401(k) accounts that they become burdensome to maintain.”
Assess your circumstances and money goals and talk it over with a financial planner to weigh all your options.
