33 responses

  1. Ashley @ Everything Finance
    October 24, 2011

    I’ve quit two jobs with 401(k)s. The first time I cashed it out (stupid!). The second time I rolled it over into a traditional IRA. (smart!)

    Luckily (if you can call it that) the first time was a very small amount. I think I got less than $200 out of it.

    • moneycone
      October 25, 2011

      Can’t blame you for cashing it out. In my experience, most 401K custodians don’t explain the tax consequence of cashing the money out.

      Lucky indeed that the amount was small!

  2. Hunter @ Financially Consumed
    October 24, 2011

    Wow, you have created a comprehensive resource here MC. Thanks for laying it all out.

    • moneycone
      October 25, 2011

      Glad you find it useful Hunter!

  3. UltimateSmartMoney
    October 24, 2011

    Great post with awesome pictorial steps. I ended up rolling over my 401K into Roth IRA after I left my first company. Turned out to be okay…

    • moneycone
      October 25, 2011

      Smart of you to not leave your 401K money behind!

  4. YFS @ Yourfinancessimplified
    October 24, 2011

    Great post! Many people fail to realize that it will cost them 10% penalty and they have to pay their tax rate on the money taken. It is considered ordinary income.

    • moneycone
      October 25, 2011

      Good point YFS!

  5. Roshawn @ Watson Inc
    October 24, 2011

    So many people leave the job & their money behind, which is typically a BIG Mistake; cashing it out is even worst (IMHO). The decision of Roth vs traditional IRA in this case depends on other money you have available.

    • moneycone
      October 25, 2011

      Roth vs Traditional will depend upon knowing whether your tax rate will be more or less after retirement.

      But for keeping things simple, I’d say go with Traditional – you can always convert to ROTH at a later time.

  6. World of Finance
    October 24, 2011

    Great article MC. This is a great resource that I plan to share with my friends. It’s a simple but very helpful layout that explains the pros and cons to each scenario. Thanks for sharing this.

    • moneycone
      October 25, 2011

      Thanks WoF! Much appreciated!

  7. Shaun @ Smart Family Finance
    October 25, 2011

    Another thing to consider is if you have a 401k that is below $5,000 and quit your employer can drop you from the plan.

    • moneycone
      October 25, 2011

      Good point Shaun!

  8. Untemplater
    October 25, 2011

    I haven’t had to do a rollover yet but I have always wondered how it works. I didn’t realize there are that many different ways to do it. Really insightful step by step guide MC! -Sydney

    • moneycone
      October 25, 2011

      Thanks Sydney!

  9. DIY Investor
    October 25, 2011

    Excellent post on a process that confuses many people. I agree that the preferred approach for many people is to rollover to a traditional IRA where you have control. Then you can invest in low cost index funds and with some discount brokers, commission free funds.
    In some instances it is possible to transfer “in kind” so that funds are transferred and the “out of the market” issue doesn’t arise.

    • moneycone
      October 25, 2011

      True DIY. A lot of what can and cannot be done depends upon the employer and the 401K provider within the framework provided by IRS.

  10. Miss T @ Prairie Eco-Thrifter
    October 25, 2011

    I agree with Hunter. What an awesome resource. There is so much thought and detail that went into this. Great job. Since I live in Canada, a 401 doesn’t apply to my but I definitely know where to point some of my American relatives.

    • moneycone
      October 25, 2011

      Thanks for the support Miss T!

  11. Christa
    October 26, 2011

    Lots of great information here! I like you you laid it all out in simple terms.

  12. Squirrelers
    October 26, 2011

    Good post, Money Cone. There are certainly different ways to approach this, and you did a nice job.

    Cashing out is not good, generally speaking. Hard to imagine some people do that, when they’re not in financial distress.

  13. retirebyforty
    October 26, 2011

    Great job on a comprehensive post! I’ll pick the same choice as well and roll it over to the traditional IRA. I want to put off paying tax as long as I can. :)

  14. Suba
    October 26, 2011

    Nice resource!! I am in my second job. First job I didn’t even have 401k (yes I was financially very brilliant then ;) ) If I had a 401k I might have probably cashed out. Now I know better, I will roll over the traditional 401k to IRA and the ROTH 401k to ROTH IRA to not pay any extra taxes. My husband’s 401k will be tricky to rollover because it is semi-managed.

    What plugin is that MC? I have been looking for something like this. Is it slidedeck? Pro or regular?

    • Moneycone
      October 27, 2011

      Hey we all made mistakes when starting out! You are not alone!

      On the plugin, you are right, I use slidedeck.

  15. Aloysa
    October 26, 2011

    Great post. Here is my confession: I did cash out my 401K once. It was a very small amount and I needed money. Really bad. So, there you have it. The biggest NO NO you listed first, I’ve done it. :)

  16. Barb Friedberg
    October 27, 2011

    We roll over every time we switch jobs. Over time, keeping the funds compounding tax free is an awesome way to grow wealth!

  17. SB @ One Cent At A Time
    October 28, 2011

    good resource to read. I rolled over previous 401(k) consolidation helps.

  18. Maggie@SquarePennies
    October 28, 2011

    This is so helpful, MC! I agree about moving to the IRA; the flexibility is so important! Thanks for a great step-by-step tutorial!

  19. Buck Inspire
    October 29, 2011

    MC strikes again! Another terrific resource. Will definitely refer to this when I switch jobs. Thanks!

  20. Robert @ The College Investor
    October 30, 2011

    Good information. I would always roll it over into a Rollover IRA. When you do, make sure that you assign your beneficiaries properly though.

  21. Cherleen @ The College Investor
    October 31, 2011

    This is one of the best posts I have read about 401K. Since I started investing on my 401K, I have been informed that cashing it out is the most stupid thing to do with it. So far, I have not done anything with it yet but definitely I will roll it over. but not now… not yet.

  22. Darwin’s Money
    November 1, 2011

    I’ve had a couple friends leave my firm that ended up cashing out their 401(k)s. They were fully aware of the implications and did so for no other reason than the job switch affording them an excuse/opportunity to do so I suppose. aggghhh!

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