A 401k is a retirement savings account offered by employers to their employees. The Harvard Business Review recently reported that too many people cash out their 401k accounts when they change jobs, which can have negative consequences. The more “employer matching” there is, the more likely people are to withdraw those funds, but employer matching is essentially “free money” that should be taken advantage of to encourage saving. The real benefit of a 401k is the years of tax-free growth and compounding that can become incredibly valuable later in life. It’s essential to keep the money invested to capture that goodness. It’s unfortunate to see people treat money differently based on whether they saved it or if it was given as a bonus. It’s crucial to cherish every dollar that enters your life, whether it’s your own savings or employer contributions.
If you’re switching jobs and considering cashing out your 401k, avoid it if you can! Instead, you can roll over your 401k into another retirement account, like an IRA, to avoid paying taxes and penalties. Here are the steps to roll over your 401k:
- Contact the financial institution where you want to open your new account and ask about their rollover process.
- Request a direct rollover from your old 401k account to your new account. This means the funds will be transferred directly to the new account without you ever touching the money.
- Fill out the necessary paperwork, which will likely include forms from both your old and new financial institutions.
- Make sure to complete the rollover within 60 days of receiving the funds from your old 401k account to avoid paying taxes and penalties.
By rolling over your 401k, you’ll ensure you’re saving for your future and taking advantage of the benefits offered by your employer.
