A significant number of 401(k) assets held by workers who leave their jobs has been left behind in the old plans,
A full 43% of the assets in 401(k)s held by workers who left their jobs in the first quarter of 2008 still remains in the old plans. Neglecting their investments, investors could be losing out big time.
While leaving assets behind in a previous employers 401(k) plan is an option, unless the employer requires a distribution, people have other alternatives. One, they could roll the money into an IRA. Two, they could roll it into a new employers plan. Or, three, probably not a good idea, but they could take the money out as a cash distribution and pay up to 40% between the taxes and fines.
We urge people to educate themselves on their options when they leave a job, especially if they expect to be out of work without access to a savings plan at a new job, said Rene Kim, senior vice president at Schwab. People who leave money in a previous employers 401(k) plan often forget the money is even there, which can result in asset allocations falling way off balance, based on an individuals savings objectives and risk tolerance.
Of those who did distribute their assets, the most popular choice was to roll the money into an IRA (75% did), followed by cash distributions (14%), moving it into a new employer plan (7%) and other forms of distribution (4%).