NDSU Extension Service - Ramsey County

Accessibility


| Share

Don't Leave Retirement Funds Behind

Don’t Leave Retirement Funds Behind

 

            Cash out your 401 (k) when you change jobs?  A less than positive choice for your long-term retirement plans, but yet that is what many younger workers are doing when they change jobs or move from one career to another. a thick packet about her options for rolling over her retirement plan, but she has not taken the time yet to digest the information, since it looks a bit daunting.

            According to one report, more than half of workers in their 20’s who have 401(k) plans cash out their holdings when they change jobs, partly because their balances are relatively low.  Compare that to only about a third of those who change jobs in their 50s who do the same.

            When young adults are switching jobs, money is often tight and it is tempting to withdraw the cash.  It is also difficult to envision retirement when you are in your 20’s. 

            In addition to losing retirement funds, the withdrawn funds will be counted as income, and as such are subject to tax.  There are also federal penalties for withdrawing money before retirement age – typically a 10 percent penalty.  After paying penalties and income tax, most early withdrawers end up with much less than they imagined.

Here are some questions to consider about your retirement account when you’re changing jobs:

■ Can I leave my money in the retirement account at my old job?

In general, you can allow the money to stay put as long as you have more than $5,000 in the account; employers may or may not allow you to do so if the balance is lower. But you cannot contribute new funds to the account after you leave, and it may be harder for you to keep track of what you have if it is in multiple locations.

■ What do I have to do to complete a rollover?

The human resources department at your new company can help walk you through the necessary steps to move the money into its retirement plan. Or, if your new employer does not offer a retirement plan, you can roll the money into an individual retirement account.

■ My former employer mailed me a check for the money in my retirement account. What should I do with it?

Companies may close retirement accounts with balances below $5,000.  You still have 60 days to put the money into a new retirement account, before it is subject to taxes and penalties.

            Even small amounts of lost money can have a big effect on retirement due to decades of lost returns.  If you forfeit $1,700 in company matches three different times early on in your career, for a total of $5,100; by retirement, the overall loss could be worth as much as $36,000 – certainly an amount anyone would like to add to their retirement portfolio.

Creative Commons License
Feel free to use and share this content, but please do so under the conditions of our Creative Commons license and our Rules for Use. Thanks.