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If you had $10,000 in your 401(k) and you decided to cash it out at age 30, how much would you have left after taxes and penalties?
Stick around, and we’ll get you the answer.
If you're early in your career, the average time that you spend in a job is just around 3 years, so, if you started your career at 24, there's a good chance you might have 5 different jobs by the age of 40.
So, you might ask yourself, What does that mean for my future savings or retirement?
How can you manage to get any kind of savings together if you're at a new job every few years? One of the great ways is to contribute to the 401(k) plan offered by your employer—especially if they’ll match your contribution. Even small contributions can add up pretty quickly.
I know what you’re thinking, though, How is that going to add up if I keep switching jobs? That’s a good question. With all the job changes, it’s tempting to cash out your 401(k) and use that money for something you want or need now – instead of 20 or 30 years down the road.
However, if you do that every time you change jobs, you will make it harder to build your retirement nest egg. Whether you’ve saved a little or a lot, every dollar helps build towards your retirement future.
If you change jobs once or even ten times, consider all the options that you have available for that money: leaving it in your former 401(k), rolling it to your new 401(k) at your new employer, rolling it into an IRA or cashing it out. You have the control of your money and by leaving it in a retirement plan, you can continue to build towards your retirement future.
There are a few simple steps you can take to have money so you can retire one day. First, build some savings that you can use to pay bills and cover unexpected expenses. If you have savings, you won’t need to raid your retirement account.
This will allow the money you’ve saved to keep growing tax-deferred over time, and allow you to have the kind of retirement we all dream about.
There are a few simple steps you can do to have money so you can retire one day. First, build some savings that you can use to pay bills and cover unexpected expenses. If you have savings, you won’t need to raid your retirement account.
Then, roll over your 401(k) to an IRA when changing jobs instead of cashing it out. This will allow the money you’ve saved to keep growing tax-deferred over time, and allow you to have the kind of retirement we all dream about.
So, if you had $10,000 in your 401(k) and you decided to cash it out at age 30, how much would you have left? The answer is C, $6,300 – the other $3,700 would have been paid out in taxes and penalties. So keeping the money in your 401(k) is a really good idea, unless you absolutely need it.
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Traditional IRA distributions are taxed as ordinary income. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified Roth IRA distributions are also federally tax-free provided a Roth account has been open for at least five years and the owner has reached age 59 ½ or meet other requirements. Both may be subject to a 10% Federal tax penalty if distributions are taken prior to age 59½. Wells Fargo Advisors is not a legal or tax advisor.
Please keep in mind that rolling over assets to an IRA is just one of multiple options for your retirement plan. Each of the following options are different and may have distinct advantages and disadvantages.
When considering rolling over assets from an employer plan to an IRA, factors that should be considered and compared between the employer plan and the IRA include fees and expenses, services offered, investment options, when penalty free withdrawals are available, treatment of employer stock, when required minimum distribution begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with employer-sponsored retirement plans. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company. Wells Fargo Bank, N.A. is a banking affiliate of Wells Fargo & Company.
This video has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. The accuracy and completeness of this information is not guaranteed and is subject to change. Since each investor’s situation is unique you need to review your specific investment objectives, risk tolerance and liquidity needs with your financial professional(s) before a suitable investment strategy can be selected. Also, since Wells Fargo Advisors does not provide tax or legal advice, investors need to consult with their own tax and legal advisors before taking any action that may have tax or legal consequences.