Choosing to pull funds from your 401(k) plan when switching jobs can pose a significant financial setback.
Surprisingly, about 41% of workers opt to withdraw their funds, with the majority emptying their accounts completely. This trend was observed in a comprehensive study examining the withdrawal habits of over 162,000 individuals from 2014 to 2016.
In 2022, the average 401(k) account balance stood at $27,376, a mere fraction of what could be attained with compounded growth over the years. Early withdrawals not only reduce potential savings but also carry tax implications, with penalties that can significantly eat into the withdrawn amount.
Yet, it seems employers often miss the mark when it comes to guiding their departing workforce. Instead of offering valuable advice, many companies pass the responsibility to the financial institutions managing their 401(k) plans.
As a result, workers often perceive their 401(k) funds as bonus money, especially when a substantial portion comes from employer contributions, leading them to cash out.
Want a deeper understanding of the long-term consequences of cashing out your 401(k) and how you can make informed choices?
