1 in 3 Americans Withdraws 401(k) Funds After Leaving Their Job—What Is Behind This Growing Trend?

Core Insights - Retirement savers are increasing contributions to their 401(k) accounts, but many do not retain these savings until retirement [2][3] Group 1: Cash-Out Trends - A significant portion of employees withdraw their 401(k) balance in a lump sum when leaving a job, with one-third of those with Vanguard-administered plans doing so in 2023 [3][9] - Cashing out before age 59½ incurs a 10% early withdrawal penalty and requires income tax payment on the withdrawal [5][9] - Hourly workers are more likely to cash out their accounts, with 42% doing so compared to 21% of salaried workers [6] Group 2: Impact on Retirement Security - Cash-outs are seen as a threat to retirement security, as they undermine the long-term savings efforts of individuals [4] - Lower-income workers tend to cash out more frequently than higher-income workers, with hourly workers showing a higher likelihood of cashing out even at similar income levels [6] Group 3: Withdrawal Behavior - Those who choose to cash out are more inclined to withdraw their entire balance rather than a portion, possibly due to the nature of the opportunity presented [7]