These Common 401(k) Errors Could Cost You Millions

February 8, 2026 · Personal Finance

A professional woman packing her bag in a bright, modern office setting. — A professional woman packs her notebook into a leather briefcase, ready to navigate the financial transitions of changing jobs.

3. Cashing Out When You Change Jobs

When you leave a job, it is tempting to cash out your 401(k), especially if the balance seems small. This is often the single most destructive financial decision a worker can make.

If you cash out:

You pay taxes: The entire amount is taxed as ordinary income.
You pay a penalty: If you are under age 59½, the IRS hits you with a 10% early withdrawal penalty.
You kill the compound interest: You reset the clock on that money’s growth.

A $10,000 cash-out by a 30-year-old doesn’t just cost them the $3,000 or so in taxes and penalties today; it costs them the roughly $100,000 that money would have grown to become by age 65.

Action Step: When changing jobs, always roll your 401(k) over into your new employer’s plan or a private IRA. This keeps the tax shelter intact.