Almost half of employees cash out 401(k) at termination

Despite the growing need for employees to save for retirement, a significant number of workers participating in 401(k) plans cash out of them once they leave their company. A study of nearly 200,000 workers who participate in their 401(k) plans found that 45% elected to take a cash distribution once they left their jobs. The remainder either kept their savings in their current employer's plan (32%) or rolled the money over to a qualified IRA or other retirement plan (23%).

The highest incidence of cash distributions was among young employees (66%) age 20-29. Employees who were older and more tenured were more likely to preserve their retirement wealth, either keeping their assets in their current employer's plan or rolling it over. Still, more than 42% of workers age 40-49 elected to cash out of their plans upon leaving their jobs.

Balance was a factor when it came to workers' tendencies to cash out of their plans. Nearly three-quarters (72.5%) of workers with balances under $10,000 took a cash distribution. When plan balances were between $10,000 and $20,000 at termination, cash-out rates were much lower. Still, nearly a third (31%) of these employees elected to take their distribution in cash.

Source: Hewitt Associates