If you're changing jobs, you might be tempted to withdraw and spend the funds you saved in your employer-sponsored retirement plan.

We’ll show you how to avoid the trap of cashing in your retirement savings and how to 澳洲幸运5官方开奖结果体彩网:transfer your funds when you change jobs.

Statistics Tell the Story

According to 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) research, Americans are losing a collective $5.7 billion each year to 澳洲幸运5官方开奖结果体彩网:early withdrawal penalties and fees.

A leading reason for taking out the money is leaving a job. In fact, nearly half of all workers in the U.S. take the money out of their retirement plans and spend it 澳洲幸运5官方开奖结果体彩网:when they change jobs, according to a U.S. Federal Reserve Board Survey of Consumer Finances.

In short, many people completely deplete their retirement savings when they change jobs. Hard data on job changes is elusive, but many surveys suggest that the average worker will change careers several times during the course of a lifetime. Indeed, the 澳洲幸运5官方开奖结果体彩网:Bureau of Labor Statistics (BLS) reports that that the average American worker will hold around 12 jobs between the ages of 18 and 52.

Why People Spend Their Retirement

There are a couple of reasons why people spend their retirement savings. First, th♚ere is often a lag between the time an individual who changes jobs receives the last check from their previous employer and the first check from the new employer.

Second, many people take time off between jobs. If they do not have enough of an e൩🍬mergency fund saved, they tend to use their retirement savings to pay bills until the first check from the new job arrives.

Third, when the opportunity arises to spend a nice chunk of♍ change, many folks just can’t resist the urge. Fourth, making arrangements to move anꦏd reinvest your money can be a hassle, particularly if you are not familiar with or comfortable with the idea of making investment decisions.

“I have had clients who wanted to use their retirement savings before dipping into their savings account because it ‘was harder to save’ the money in their savings account," says Russ Blahetka, a former CFP® and former managing director of Vestnomics Wealth Management in Campbell, California. "Saving to their 401(k) and IRA was so automatic, and therefore painless, the🍸y con🅠sidered the loss of up to 50%-plus of their retirement money to taxes and penalties far less painful than dipping into their bank savings account.”

Unfortunately, the failure to 澳洲幸运5官方开奖结果体彩网:roll over retirement assets into a new employer's plan or into an individual retirement account (IRA) is generally a big mistake that leads to bigger problems. Transferring 🌠your retirement account balance to an IR🤡A or your new employer’s plan wi🐟ll help to prevent you fromꦗ spending your nest egg.

Don’t Make the Time Crunch a Crisis

The high percentage of cash-outs versus rollovers has prompted lawmakers to take action in an effort to encourage workers to roll over their qualified plan balances to an IRA or another eligible retirement plan when changing jobs. Prior to March 28, 2005, employers could automatically close qualified plan accounts and send a check to an ex-employee if the former employee’s qualified plan balance was $5,000 or less.

The 澳洲幸运5官方开奖结果体彩网:Ec🌸onomic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) changed those rules, making it mandatory for employers to automatically send plan balances to an IRA if the account balance is between $1,000 and $5,000—unless the employee provides written permission to have the amount paid to them. While this is a good start, it doesn’t solve the problem, as the rollovers are typically sent to 澳洲幸运5官方开奖结果体彩网:money market accounts, which provide little opportunity for growth.

Why You Shouldn’t Cash Out and Spend

澳洲幸运5官方开奖结果体彩网:Spending your retirement savings on anything other than retirement is a bad idea. 🍎Once that mon൲ey is gone, it is no longer available to accrue earnings for your nest egg.

The lost opportunity for growth through 澳洲幸运5官方开奖结果体彩网:compounding can never be recaptured, and it c🌼an be particularly damaging for older workers with little time to replenish their nest egg. It's also damaging for younger workers who are decades from retiring. By spending $5,000 today, a worker with 40 years to 🍌go before retirement could be passing up $80,000 (assuming the spent money would have doubled every eight years) in retirement money.

Regardless of whether you have worked for five years or for 15 years, spending the money from your retirement plan rather than rolling it over leav🦋es you with nothing in the way of retirement savings to show for all those years that you worked. When you start your new job, you’ll be starting your retirement savings from scratch. To help make up for the money that you spent, it is likely that any raise that you received for changing jobs will need to be invested in your new retirement plan if you want to have any hope of replacing your lost retirement savings.

If the thought of a comfortable, well-funded 澳洲幸运5官方开奖结果体彩网:retirement isn’t enough to keep you from spending your retirement savings, perhaps the prospect of losing money to taxes and penalties will convince you to reconsider. Consider that rollover-eligible distributions from your account that are paid to you will be subject to a federal withholding tax of 20%. In addition, the amount may be subject to an early distribution penalty of 10% if the withdrawal occurs before you reach age 59½, unless you qualify for a 澳洲幸运5官方开奖结果体彩网:hardship withdrawal.

Rollovers and Withholding Tax

When you change jobs, you usually are eligible to roll over your balance to an IRA or another employer-sponsored plan. If this is done as a 澳洲幸运5官方开奖结果体彩网:direct rollover, no taxes will be withheld from the amount.

To help simplify the process, “speak to the human resources manager at your old employer to get any documents necessary to initiate the rollover,” says Mark Hebner, founder and president of . in Irvine, California, and author of Index Funds: The 12-Step Recovery Program for Active Investors. 

“Have a plan in terms of where you want the assets to go," Hebner adds. "If it is to your new employer’s 401(k) plan, speak with your current HR manager to make sure everything is lined up in order to receive the transfer. If it is to a rollover IRA, have the account already created to receive the assets. This will create a smooth transition for the rollover.”

The Bottom Line

The responsibility of safeguarding your retirement savings is in your hands. Make the most of it. Don't spend it—take it with you every time you change jobs. Roll it over to a new retirement account. Watch it grow.