Now black people, tell me if I’m lying; when we see that we have accounts open with money in them, first thing we want to know is how we can get it out. It’s okay to laugh. Understand that even the token black girl who works at the bank (me!!!) is the exact same way.
This was the case with me after I quit my job at Costco and realized I had almost $2000 stashed away in this account called a 401k. I had no idea what this account was really all about until it was broken down to me. Basically it’s a savings account for retirement offered by your job in which a lot of times they will match what you contribute to it. Yes, it’s your money, but you can’t just go to the bank and take money out like you would a normal checking and savings account. It’s designed that way so you’ll actually save money. I’ll have plenty of posts to come discussing the woes of savings amongst our culture, but this one is for what not to do with a 401k when you quit or get terminated from your job.
So on my last check, Costco gave me my last two weeks pay and cashed out my remaining sick and vacation hours. Coo. But I was sure to inquire about how to get my 401k money because right then I sure did need that extra money just graduating from college and all. My manager gave me the phone number to call and I spoke with a guy who was persistent in giving me options other than just cashing it out. I’m not going to lie, everything he was saying went in one ear and right out of the other. I wanted the money in hand as soon as possible. I had plans for the cash before I even had it.
He told me there would be taxes taken out initially and on top of that an early withdrawal penalty. How much could that be right? So I just kept agreeing until I heard those magic words: “Okay, you’ll have your check in 5-7 business days.”
When I got the check, it was a little over $900. Those taxes and early penalty fee were much more than I thought but I was still happy to have the check in hand. But $900 went much faster than I thought. Within a few months it was spent on school loans, car notes, and daily living. My retirement money was back at ground zero just like that.
Lessons Learned: Don’t cash out your 401k. Just don’t do it. We spend money too fast when we have it. Saving for retirement is much more important than our people realize. Before we know it we’re 55 years old and barely have $500 to our name because we didn’t develop proper saving habits. We don’t need to be working until 80 and if I can help it, we won’t.
#WYSD-What You Should Do: When you do quit or get terminated, talk to HR or your financial advisor first before making a decision about what to do with your 401k. My advice, roll it over into a new 401k with your next job or keep it in a 401k savings account with that previous employer. You want to keep it in an account though, that’s my bottom line. I’m going to paste a link below from wisegeek.org that gives a short detail about options for a 401k. Check it out and find which is better for you. Even if you do have to cash it out, there’s ways to do so that have your retirement savings interests as first priority.
We as a people need to start realizing the benefits of saving and getting ready for retirement early. So don’t do what I did.