An alarming number of workers cash out 401(k) plans

[Yo_Mama_Been_Loggin]

A 401(k) retirement account is supposed to be hands-off. It’s not your money, in theory, but savings for the future you.

And yet, when Americans leave jobs, one-third of them cash out their 401(k) accounts.

-snip-

But cashing out a 401(k) is generally the worst option, at least in financial terms.

If you liquidate a 401(k) before age 59 ½, you generally pay income taxes on the amount, plus a 10% penalty for early withdrawal.

https://finance.yahoo.com/news/heres-why-alarming-number-workers-090054435.html

[gab13by13]

1. Yup, have to be hard up to do that.

[Johnny2X2X]

2. Yeah, this is scary

But I think the majority of these people do it with very little money to cash out. These aren’t people cashing out $50K, they’re cashing out $5K to get by in tough times.

[leftstreet]

3. Yep

from the article:

Employees are also much more likely to cash out a 401(k) account with a small balance. The typical cashout involves “a few thousand dollars,” Goodman said.

[roamer65]

8. Vast majority of 401k's this time next year will be worth a LOT less.

Average correction in stocks during recessions is 40-50 pct.

[Renew Deal]

12. And three years from now it will be up by a lot more

Check out the charts from the last recessions. The recovery doesn’t usually take very long. Plus if you continue to contribute and buy low, it really grows.

[roamer65]

13. Probably.

That’s what I will be betting on.

[Emile]

4. and Republicans want to privatize Social Security

[MichMan]

5. Had a ex co worker do that

Company provided a base contribution in a 401k. He quit to go work somewhere else and since he hadn't contributed any of his own money decided to cash out and use it towards a old Chevy Nova hot rod. Said it was free money so why not. He was around 50 and had some type of treatable cancer at the time.

That was 15 years ago and I never saw him again

[Xolodno]

6. When your unemployed and only getting roughly $400 a week...

...and then SNAP....which the GOP is cutting. Rent/house payment, utilities, etc. don't go away. And if you are over the age of 50, finding a job isn't easy. Of course in my industry, even younger people are having a hard time now. A lot of companies have bought into the AI craze and eliminating employee's.

[roamer65]

7. Home sales are at the lowest level in 30 years. Even lower than 2008 to 2010.

Let that sink in folks and be a warning of what’s coming VERY SOON.

The biggest housing bust since probably the Great Depression.

You need to get your finances ready ASAP.

[Johonny]

9. GenX is going to be so screwed in 10 to 15 years

So many have no pensions, no 401Ks, and no one wants them working until 70. The 401K generation is completely screwed. You can see it coming.

[Johnny2X2X]

11. I do fear for my generation

Gen X is the first generation that could see reductions in social security payments. They're the generation that saw pensions go away.

And yeah, I look at it in terms of years, not dollars. If Social Security is still there for me in 10 or 12 years, I can retire. If it's reduced to 80% payments I will work another year or two. If the Republicans get their way and do away with it all together, I will work until 70 at least.

Gen X's media 401K savings is like $70K depending on where you look for the data. These are people who will start retiring later this decade. It's going to be ugly for far too many people.

[progree]

10. And after age 59 1/2, one still pays income tax on the withdrawal -- if a large withdrawal, it can boost one

into higher and higher tax brackets (and it can also increase the percent of Social Security benefits that are taxed, and it can also increase Medicare premiums - search on IRMAA) So best to withdraw modest amounts over multiple years.

If one is mostly house-cleaning, i.e. getting rid of multiple small 401k's after working for several different employers, then one should look into a tax-free rollover of them into an IRA where the tax-deferral will continue.