subject: 401k Problems For Workers Changing Jobs [print this page] Senior workers who have been changing jobs throughout their careers may run into some financial problems due to their 401K. Because of the way some workers transition in and out of jobs (and retirement plans) as well as the way these accounts are structured, they may not be able to make the most out of their plan benefits and balances.
401Ks typically have around 18 options for investment, with fees varying among these plans. Moving to a 401K that charges bigger fees usually means slower growth for your nest egg. On the other hand, lower account fees typically mean that you will have more money when you retire. When choosing jobs, try to get on that comes with a 401K that charges less than one percent, and do not go with a plan that requires you to pay over 1.25% for plan fees. When fees are too high, these amounts can negate the benefits of tax-deferred retirement accounts. Many employers actually enroll their workers in disadvantageous 401Ks, wherein these employees should not invest more than they should to get matching contributions from the employer. Extreme cases, such as plans that charge 3.5% annually could overturn the tax advantages of a retirement account if applied to the entire balance.
Also, more workers are cashing out their plans after quitting a particular job, more-so when they have relatively smaller balances. If you cash out your 401K benefits after being a short-term employee, your company could withhold about 20% of your balance for state and federal taxes on the distribution, in addition to a 10% penalty if you are younger than 59 1/2 years of age. Overall, early distributions are a bad move, as the normal tax and the penalty will cause you to end up with a fraction of your account balance. In addition, many workers who quit one job may have to wait some time before starting on another. These individuals may also have to wait again after getting hired before enrolment in the company 401K, and then receive small matches at the onset of the new job.
Aside from picking a 401K with low management and operation costs, workers should leave their account balances to grow within the 401K from their old company, and roll it over to a new retirement account or move the balance to another type of retirement savings plan, the IRA. These moves can help avoid the problems that come with changing jobs and the problems that come with the existing 401K system.
