I’ve twice been given the opportunity to rollover my 401(k) instead of cashing it out, and I’ve twice failed to do so. In both cases, I mistakenly placed today’s concerns ahead of those of tomorrow.
Cashing out my 401(k)
The first time I cashed out my 401(k), I had accumulated a little over $5, 000 before taxes and penalties. If I recall correctly, I used that money to pay off debt and buy a new washer and dryer.
Unfortunately, I didn’t hold back enough to cover my state and federal taxes, so I had trouble paying my taxes when they came due and had to set up a payment plan. This left a sour taste in my mouth, and I vowed never to make that mistake again.
The second time I cashed out my 401(k), I had accumulated a little over $2000, and once again felt that debt reduction was more important than the long-term goal of retirement. This time around I tried to hold back more for taxes, but once again fell short. Once again, I had to set up payments to the IRS to pay what I owed.
With a new job and a fresh outlook, my 401(k) has once again started to grow. Moreover, I no longer review my retirement money as an expensive savings account. I’ve learned from my past mistakes, and now consider my 401(k) to be untouchable, off-limits until I retire.
Looking back, I estimate that I’d have over $10k in an IRA if I had just rolled my 401(k) money instead of withdrawing it. Instead, I have a washer and dryer that are not aging well and a few debts that were paid off, but have since grown back.
When the time comes for me to move from this company to another, I will not hesitate to roll my 401(k) into an IRA. When I do this, it will happen electronically so I don’t ever see a check. Unfortunately, I’m just now learning this at 36 years of age, but starting over now is better than never starting at all.
My experiences have taught me the following:
- Retirement savings, no matter how meager, do add up
- Never pass up matching contributions from your employer
- Always check the fees associated with your investments
- Be an active participant, and move your money if necessary
I also try to imagine myself at 67 as I’m putting the money away.
Hopefully you’ll learn from these mistakes instead of making them yourself.