NEW YORK (Money Magazine) - Nearly half of all retirement plan participants who change jobs fail to roll over their accounts, according to Hewitt Associates.
They take the dough instead, incurring unnecessary taxes and penalties for doing so. And another 25 percent have outstanding loans or have taken withdrawals on the job.
What gives?
Part of the answer lies in how itinerant the U.S. work force has become. The average worker changes jobs more than 10 times over a career, so the 401(k) balance from a single job often doesn't look like much. It's tough to envision that $5,000 or $10,000 might be worth $25,000 or $50,000 at retirement. But hey, it might make a nice down payment for a car right now.
Or better yet, a house. That's what John McGlade thought, anyway. He was 38 and working as an adjuster with Reliance Insurance outside Philadelphia in the late 1980s. He had racked up a 401(k) balance of $18,000. At the time, McGlade recalls, he was trying to buy his first house. So he emptied the account to pay his closing costs, forking over taxes and penalties to Uncle Sam.
"I didn't even need all of it," he says. "And it really set me back. It was one of those things where you don't realize until 15 years later how important it was to keep the money in there."
Total damage, assuming McGlade would have made 8 percent a year on that money, had it remained invested until retirement: about $144,000.
Get it right
The key to managing retirement assets is convincing yourself they are absolutely hands-off. If you need cash in a crunch, think about tapping a home-equity line of credit (or better yet, deferring that new-car purchase into 2006).
And when you leave a job, pick up a rollover kit (nearly every broker has one). If you're too busy to bother with a rollover, and you have more than $5,000 in your previous employer's plan, leave the money where it is.
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