Saturday, January 10, 2009

EBRI Issues Report on Lum-Sum 401K Distributions at Job Change

Lump-Sum Distributions at Job Change from the Employee Benefit Research Institute documents rollover decisions by terminating employees. Rolling over the savings into another tax qualified account has become an increasingly common decision. However, the decision varies by age and the size of the account.

The data show that an increasing percentage of employment-based retirement plan participants are rolling over all of their lump-sum distributions on job change, and fewer are spending any of their distributions on consumption. However, the data also show that approximately 60 percent of those who took a lump-sum payment did not roll all of it into tax-qualified savings, although not all of those distributions were spent exclusively on consumption but instead were used for home purchases, starting a business, or paying down debt. This behavior varied significantly across participants’ ages at the time of the distribution and the amount of the distribution, with older individuals (up to age 65) and those with higher balances more likely to roll over their assets. This suggests that some individuals, particularly younger ones, do not understand or value the fact that a small amount of savings can make a significant impact on retirement assets due to compound interest. By cashing out even small amounts, younger participants are sacrificing a potentially important asset for their retirement.


See a related report by Patrick Purcell, Pension Issues: Lump Sum Distributions and Retirement Income Security, CRS 7-5700.

2 comments:

  1. I understand and value the fact that a small amount of savings can make a significant impact on retirement assets due to compounding interest.

    But I earn minimum wage and have student loan debt, so I can't save up a dime.

    ReplyDelete
  2. Thank you for sharing this information.
    Fidelity 401k

    ReplyDelete