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401(k) Fact |
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About 44% of 401(k) participants who get a lump-sum distribution save all of the money. |
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Chances are, you’ll change jobs several times over the course of your career. In fact, the average US employee switches jobs 11 times before retiring. That means employees may participate in 11 different 401(k)s or other retirement savings plans during a career.
Fortunately, 401(k) plans are portable. If you switch jobs before retirement, you usually can choose among several things to do with your 401(k):
- Leave the money in your former employer’s plan
- Roll over the money to your new employer’s plan, if the plan accepts transfers
- Roll over the money into an IRA
- Take the cash value of your account
With the first three alternatives, you won’t lose the contributions you’ve made, your employer’s contributions if you’re vested, or earnings you’ve accumulated in your old 401(k). And, your money will maintain its tax-deferred status until you withdraw it. Remember, though, that if you move your money into a new employer’s plan, you’ll have to wait until you switch jobs before you can move it again.
Although you have the option of taking your money out of your 401(k) when you change jobs, taking an early withdrawal may incur a 10% penalty on top of the taxes you owe, while keeping your money in a 401(k) or IRA will allow it to compound tax deferred.
You do have some time to consider your options and complete transactions. By law, you must have at least 30 days to decide what to do with your 401(k) when you switch jobs.
| Think Twice 45% of 401(k) participants withdraw the money they’ve accumulated in their 401(k)s when they change jobs, rather than rolling it over into a new plan or IRA. The repercussions of taking money out now could be enormous: If you took $10,000 out of your 401(k) instead of rolling it over into an account earning 8% tax-deferred earnings, your retirement fund could end up more than $100,000 short after 30 years. |
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