What To Do With Your 401(k) When You Depart

As was reported in an article that I recently read, Half of workers changing jobs cash out 401k when they terminate employment. Among workers in their twenties, 60% distribute the entire balance, according to the Hewitt Associates study. Short of needing money for basic essentials like food and shelter, taking money from your retirement plan is not a good idea. Not only do you lose the benefit of the likely significant growth over the rest of your working career, but you also forgo the tax-advantaged nature of that growth. Furthermore, because of the significant taxes due upon the 401(k) distribution plus the likely penalty for early withdrawal, you'll wind up with a check much smaller than the amount of money you remove from your plan. A far better option is a rollover IRA, where your money can grow for many years in the future. There are many benefits to an IRA rollover. In this case, just because most people are doing it (taking the money), really means you shouldn't.
I have changed jobs a few times over the years, as many of us have, and I have always rolled over my 401(k) accumulation to an IRA with Vanguard Mutual Fund. Their costs are very low and I can rollover all of my different 401(k) accounts into one single IRA with them. This makes it much easier to manage and to make any changes in the asset allocation over time.