As the April 15 tax deadline looms and people are thinking about how investing in an IRA might play a role in their retirement savings strategy, new data* from Charles Schwab shows that more people are rolling 401(k) savings into an IRA when leaving a job. According to Schwab data, 69 percent of assets held by 401(k) participants who left their job in the fourth quarter of 2008 had been distributed from former employers’ plans one year later by the end of 2009. An overwhelming majority of those assets was rolled over into IRAs.
Of the distributed assets in the Schwab data:
80 percent were rolled over into IRAs
10 percent were taken in cash distributions
8 percent were moved into new employer plans
2 percent were taken in other forms of distributions
A prior analysis conducted by Schwab from the beginning of 2008 to the beginning of 2009 found that 57 percent of 401(k) assets held by workers who left their job had been distributed one year later. Three-quarters (75%) of those distributed assets were rolled over into IRAs.**
“We are definitely seeing an uptick in the number of 401(k) plan participants who choose to roll over plan assets instead of cashing out or leaving savings with a previous employer,” said Catherine Golladay, vice president of 401(k) advice and education at Charles Schwab. “Consumers have been made more aware of the importance of saving for retirement, and when it comes time to change jobs, more people are thinking through their options for how to make the most of the money they have already saved.”
Workers generally have four choices with their 401(k) savings when they leave a job. They can leave money in a previous employer’s 401(k) plan unless the employer requires a distribution, roll the money into an IRA, move the money into a new employer’s plan if available, or take the money as a cash distribution.
