The NASD has issued an alert on its website warning that cashing out even a small fraction of a 401(k) investment account could be detrimental to one's retirement savings.
The alert, entitled "Think Twice Before Cashing Out Your 401(k)," talks about the consequences of withdrawing money from a 401(k) before turning 59 1/2.
"It could be very tempting for employees to tap their 401(k) plans to pay bills or take that special vacation," said NASD Vice Chairman Mary Shapiro. "It is our hope that this will help workers make better investment choices that take into account their long-term goals of retirement security."
According to a recent study, 45% of employees cash out their accounts when they change from one job to the next. The alert educates investors on other options, like leaving money in a former employer's plan, rolling over the money into the new employer's plan, or rolling over the money into an IRA.
If an employee does not transfer their money within 60 days, a previous employer is require to withhold 20% of the account to pay Federal taxes, and if the money is withdraw, taxes must be paid on the entire withdrawal in addition to a 10% early withdrawal penalty fee.
The full report can be found at http://www.nasd.com/