GRAND RAPIDS, MI - There's a growing trend with U.S. workers who change jobs - they're cashing out their retirement accounts. A recent survey of 401(k) participants, done by Hewitt and Associates, shows that about half of employees that leave their jobs choose to cash out their 401(k) plans instead of rolling them over. This trend might seem harmless at the time, but it can jeopardize future retirement.



There are several reasons why people are choosing to cash out now, instead of saving the money for retirement. A common reason might be the increase of health insurance premiums. People aren't used to paying several hundred dollars a month to insure their families. Insurance costs combined with a loss in stock value or other investments; make people feel the need for extra money now. They also believe that they'll make up for it down the road. Many people would rather pay penalties and taxes than wait for a larger return. The rising value of real estate has people believing the value of their homes will replace retirement savings. And it's true that a lot of money can be tied up in real estate, but it shouldn't be your only source for retirement savings.

People need to look at what they will lose by cashing out. You have to pay income taxes on the withdrawal, which could end up putting you in a higher tax bracket. Plus, there's a 10 percent penalty if you're under age 59½ and more importantly, you give up years of tax-deferred compounding. With longer life expectancies, you're going to need enough savings to cover long-term health care. After you look at what you're going to lose, look at why. Is it because you need the money to pay off high interest credit card bills or is it because you don't want to go through the hassle of transferring the money to another account? To avoid regret, you should look at all your choices before making a decision.

Choice #1: Rollover into an IRA - You won't be limited by the investment options in a new employer's plan and you can take distributions from the IRA without penalties under certain circumstances. In short, you'll retain the ability to borrow from the account.

Choice #2 : Rollover into New Employer's 401(k) - Not all companies allow such rollovers. But if you like the plan, the rollover will allow you to consolidate your savings in one place.

Choice #3: Rollover a Portion - It doesn't have to be all or nothing. This can be a great option for those that need money now, but realize they will also need it later.

Choice #4: Liquidate - If it's really going to improve your life, then it can be a viable option. But there's a difference between life and lifestyle. Be careful to distinguish between the two.

We all have trouble saving money, but everyone can do it if they have a plan. If you're unsure about what you should do with your 401(k) or retirement plan, seek the advice of a financial professional you trust. The initial consultation is usually free.