But many investors stand to lose out on potentially significant
gains by cashing out 401(k)s when leaving jobs
To provide a more complete picture of retirement savings, Fidelity also studied the combined balance for investors who hold both a 401(k) and Individual Retirement Account (IRA) with the firm3. For these investors, the combined 401(k)/IRA average balance is
However, Fidelity’s analysis also revealed a concerning statistic: more than one third (35 percent) of all participants cashed out their 401(k) balances when leaving their job in 20134. The trend is highest for younger participants ages 20 to 39 – those with the greatest opportunity to build long-term wealth due to their extended savings horizon – as 4 in 10 (41 percent) cashed out. With the average cash out value at nearly
“People with a 401(k) who change jobs have a critical decision to make: take the quick cash, or keep the balance in their existing plan or roll it over into another tax-advantaged account, two options that may provide them considerable income in retirement,” said
The consequences of cashing out a 401(k) may be significant. For example, a hypothetical 30-year-old who cashes out
There are alternatives to cashing out a 401(k) that provide investors investment flexibility. They include keeping the balance in a former employer’s plan7, rolling-in balances to a new employer’s plan if eligible, or rolling-over balances into an IRA. In doing so, investors preserve their opportunity to build long-term positive outcomes by keeping their assets in a tax-advantaged retirement savings account.
“Cashing out is tempting, especially in times of transition like changing jobs,” said MacDonald. “That’s why we work closely with thousands of employers to help educate employees on both the cost of cashing out as well as the tremendous opportunity for growth by remaining invested.”
Educational Guidance Helping Millions of
Fidelity offers educational help to all investors. As part of its workplace participant experience, Plan for Life, participants have access to educational help at every stage of their career. In 2013, Fidelity conducted nearly 4 million workplace guidance sessions, a 57 percent increase over 2012, and delivered more than 200 million communications across numerous channels – electronic, print, smartphone app, podcast and video. In addition, usage of Web tools more than doubled last year.
The company provides guidance through easy-to-understand online tools, from telephone representatives, over smartphones and tablets, in workshops, and at our more than 180 investor centers nationwide. It also posts educational content to its NetBenefits® Library for workplace plan participants, as well as Viewpoints on Fidelity.com about market insights, investing ideas, trading and personal finance, including a new article on the impact of cashing out a 401(k).
Media-Ready Infographics Available
Fidelity has media-ready infographics depicting the taxes and penalties associated with cashing out a 401(k) (see image) and the average combined 401(k)/IRA balance by age (see image).
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of
Keep in mind that investing involves risk. The value of your investment
will fluctuate over time and you may gain or lose money.
Diversification does not ensure a profit or protect against a loss.
Past performance is no guarantee of future results.
Fidelity Investments Institutional Services Company, Inc.
1 This statement is based on the results of a combination of independent media surveys. Fidelity was ranked first in DC assets under administration as of
2 All data in this announcement are as of
3 The combined population of investors who hold both 401(k) (or 403(b)) and IRA balances at Fidelity is 1,078,227. These individuals consist of those actively employed as well as those terminated from their 401(k)/403(b) plan sponsor. Only a subset of these individuals made contributions into their IRAs and/or 401(k)/403(b) plans in 2013. Excluded are individuals in Fidelity’s own employee plans, as well as those in the advisor-sold channel. Additionally, many workplace plan participants presumably have IRAs that are not serviced by Fidelity, and these balances are not reflected.
4 Participant left employer
5 This hypothetical example assumes an annual real return of 4.7% and systematic withdrawal payments from retirement age 67 through death age 93. All values are expressed in today’s dollars (i.e. inflation is not included). Balance at retirement age 67 would have been
6 Each individual’s tax implications are dependent on their personal tax rate and state or residence. This hypothetical scenario assumes a 20% withheld tax rate.
7 Available to investor only if plan rules permit this option.