401K » Retirement Plans

Suze Orman is probably shooting out expletives at every turn with recent news that nearly half of unemployed Americans are withdrawing funds from their 401(k) plans. Experts spend a lot of time advising workers not to touch the funds because they take away from much needed retirement at the end of a career. But workers are doing it anyway, like it or not.

Why Are They Doing It?

A recent study released by Hewitt Associates, a global human resources consulting firm, reported that 46 percent of employees who left their jobs last year took a cash distribution from their 401(k) plan. This number is based on 170,000 workers. While nearly this many workers have been withdrawing funds since 2005, it's even more common now due to the troubled economy. Many workers would much rather take out funds to pay their mortgage or car payment (and put food on the table) than to lose their precious treasures. Who can blame them?

What Are the Drawbacks

There are a couple of drawbacks to withdrawing funds or borrowing against your 401(k) plan prior to retirement, including:

• Reduced savings: If you withdraw some of your 401(k) now, you will have less growing in your plan for when you retire.
• Inability to retire: If you withdraw too many saved funds, you may not be able to retire when you'd hoped.

Here Are Some Alternatives

There are definitely ways avoid touching your 401k while unemployed, including rolling over to a Traditional or Roth IRA. If you want to avoid withdrawing your funds, there are government plans that you can consider, in addition to accepting unemployment benefits, to help you stay afloat.

However, if worse comes to worst, you may have to withdraw now and hopefully rebuild it along with taking on additional investment options at a later date.

Have you ever felt pressured to withdraw cash from your 401(k) plan?

Saving for your retirement is critical. One of the most popular retirement savings and investment vehicles available is the 401k fund.

As a retirement savings plan, the 401k is a true favorite. If you have a 401k plan that is offered by your company and you decide to leave your job, you may not be allowed to participate in your former employer's 401k plan. That being said, it does not mean you have to cash out your 401k retirement fund: on the contrary, you can shift the money into a new 401k policy or other retirement savings investment vehicle, such as an IRA. When you take the money from a 401k and put it into a new 401k this is called a 401k rollover.

Rolling Your 401k Over

If you are moving on to a new job, or if you've been laid off, you are probably wondering about the fate of your 401k plan.

The good news is that you can rollover your 401k into a new one, or another type of retirement savings vehicle, such as an IRA. When you rollover your 401k funds into a new one, you avoid having to pay punishing taxes and early withdrawal fees, which can take a shockingly big bite out of the money in the fund.

The biggest benefit to a 401k rollover is the fact that your retirement funds will still be there when you need them at the age of 65, or whenever it is that you decide to stop working. You put the money into the 401k plan for a reason, and that reason - a secure retirement - doesn't change just because your job situation has.

To learn more about 401ks, IRAs, retirement savings vehicles, and the benefits of a 401k rollover, be sure to consult with a financial adviser.

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