Personal finance guru and author David Bach offers some useful thoughts on 401(k) rollovers — the process people use to move their 401(k) money when they leave an employer. Here’s his list of the biggest mistakes people make when rolling over a 401(k):
1. Cashing out.
2. Leaving your money behind.
3. Not taking the “direct” route.
4. Making hasty decisions regarding company stock.
5. Going it alone.
Of the entire list, the most stunning is how many people cash out their 401(k)s when they switch jobs: “The last thing you should do is tap into your retirement savings simply because you’re changing jobs and you can. Yet according to Hewitt Associates, 45 percent of employees do this. What’s worse is that 69 percent of employees between ages 20 and 29 cash out — and this is the group with the most to gain from long-term compounding.”
Sure, it’s basic information, but as one commenter states: “This is common sense advice, but you’d be surprised how many people don’t have common sense.” Fortunately, all these problems are easy to avoid and Bach offers simple suggestions for each of them.