If you’re changing jobs, you will probably remember to pack your framed pictures, lucky pen and alma mater coffee mug. But there’s something else you should take with you: your 401(k).
Until recently, that was easier said than done. But a U.S. Labor Department ruling last fall could open the door for automatic 401(k) transfers between employers, which means fewer employees will be tempted to cash out, triggering taxes and early-withdrawal penalties if they’re younger than 55. Cash-outs, which are most common among workers with less than $5,000 saved, will cost Americans $2 trillion in savings over the next decade, according to Deloitte Consulting.
“Someone with a $5,000 balance in their 401(k) might lose $1,750 as a result of an early withdrawal,” says Mike Giefer, a certified financial planner in Minneapolis. Plus, “if they don’t retire for 40 years, that money invested could have been worth $75,000” (assuming a 7% yearly return).
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Companies that don’t participate in automatic rollovers may still let you roll over your former employer’s 401(k) to their plan. If your next job doesn’t allow rollovers—or doesn’t offer a 401(k)—roll your savings into an IRA.