Woman Refuses to Roll Over 401k Saying She Would Lose Half of Her Money
By Jeremy on Apr 07, 2008 with Comments 39
One of my duties as a CRPC is to assist people with rolling over their 401k/403b plans when they change jobs. More often than not, this is a pretty simple conversation to have. I explain how they are able to transfer the funds to another qualified plan and avoid any taxes or penalties. Usually, that is all anyone needs to hear. They hate taxes, and hate penalties, so the decision is simple. Well, today I met someone that didn’t quite grasp this concept.
Not that I was surprised to encounter someone who didn’t understand all of the options, but her reasoning was what surprised me. The conversation we had follows.
“Don’t Even Ask About Rollovers, I Don’t Want to Hear It”
When I answered the phone, I was shocked to hear someone jump right into their request. The first thing I heard was:
Hi, my name is Jane Doe, and I’ll be leaving the company in a few weeks and I want to cash out my 401k. Don’t even ask me about a rollover, because I don’t want to hear it.
Not a problem, as I could assist her with the request. So, I explain the process and let her know what steps she will need to take, and how long to expect everything to take. . Nothing very complicated when doing a distribution, and she was pleasantly surprised that I wasn’t giving her a hassle about it. She only has to wait until her actual termination date before anything can be done. Of course, I was still curious as to why she was so adamant about not doing a rollover–so I asked.
It is a Calculated Risk
Even though she told me not to ask, I still wanted to know why she insisted on throwing more than 30% of her money away at age 42 when she didn’t have to, and her response confused me. She said that by cashing out early, she knew exactly how much money she was going to lose. The roughly 25% to ordinary taxes, and another 10% for early withdrawal. She was proud to call this a “calculated risk.” She must have just heard this term in a movie, book, or on TV, because she was using it wrong.
I told her that taking the early withdrawal wasn’t a risk, but it was a guarantee that she would lose unnecessary money. She responded by saying something to the effect, “of it was better to know how much you’re losing than to possibly lose more.” Okay, I guess you could say that losing 30% vs. 50% would be a better option, but what are the chances of losing half of your money?
It Happened the Last Time I Rolled Money Over
Finally, the truth begins to unfold. Her “calculated risk” was based on the fact that she somehow managed to lose nearly 50% of her old 401k when she rolled it over. But how do you lose money rolling over a retirement plan? Well, you don’t, unless you’re this woman who had the unfortunate timing of rolling over her account in 2000. Apparently her incredible $40,000 account had such an impact on the stock market that when she rolled out of her previous plan, the whole stock market tanked that year.
She insisted that it was the act of rolling the money into a new account that was responsible for the losses, and refused to entertain the notion that everyone invested heavily in equities lost a significant amount of money during that same period. She then repeatedly told me that she doesn’t trust retirement plans, and she would lose half of her money if she rolled it over again, so she was satisfied with only losing about 30% instead of 50%.
I Wish This Was a Joke
I really wish that I could tell you now that this was all a joke or a made up story, but it is not. Sadly, it is stories like these that make me realize how important it is for people to take some time to educate themselves about personal finance so that mistakes like this don’t continue to happen. Either way, I did my best, and since she can’t move her money for a few more weeks, I’ll have one more opportunity to talk to her when she calls again to request the forms. Maybe between now and then she will see, hear, or read something that changes her mind.
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Filed Under: Personal Finance
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I had an almost-too-similar thing happen to me with an investment from a former employer that I (eventually) rolled over. I could have easily lost a lot of money but, thankfully, my father was heavily into eyeballing the stock market and he told me to just sit on it and wait.
I hated when dad used to call his little girl an idiot…lol I did anything in my power to prove him wrong…even if it meant taking his advice 
It’s funny how you can communicate things to a family member….in a manner where the point will be taken…but the same tone or mannerisms can’t be used with a customer to get your point across….lol
If my father had the conversation with this woman that he had with me, she would be rolling, not cashing in
also…Anne made a Devil’s Advocate comment with another scenario that happened to me a couple of years ago. A company that I worked for was sold to another company….and then again about 8 months later to, yet, another company. Somehow things got fudged up with one of the transfers of 401K money, one involving an old-fashioned paper check and I ended up losing a little on that deal.
But, overall, and despite the arguments from people who don’t believe in a retirement plan with their employer—my dad didn’t start contributing until he was in his late 40s, early 50s….probably because 401K’s didn’t exist until then.
But, he’s in his 70s now and has a hefty bank roll—all due to the stock market and his 401K. If he had relied on Social Security to carry him through, or money hidden under the mattress, his retirement years would probably be spent working at Walmart as greeter, while holding out on a waiting list for some retirement community based on (social security) income.
If this lady customer of yours still doesn’t want to invest in a rollover….tell her to jot down that you prefer shopping baskets to carts and to please have them available at the Walmart door the next time the two of your paths should cross!! lol (well, that’s what dad would tell her, anyway)
Unfortunately your experience touches just one area of personal finance. Other areas appear to be just as mysterious as that to some people, such as interest on credit cards. Personal finance education appears to be a hot topic right now… “learnin’ these folks” on the basics. And this lack of sophistication does not reflect overall intelligence….I had a coworker (a software engineer!) who could not understand why his credit card balance didn’t drop as fast as he thought based on his payments.
She really was a genius because look at what has happened to all of us experts over the last 6 months!
I think this is a great idea. If everyon with a 401(k) or 403(b) were to cash out, the revenue generated would go a long way to helping our economy out of this mess. The government has already put us and our grandchildren on the hook for 40k + each, this will just do our share to fix that. Now the can bankrupt us with universal healthcare so that business can compete internationally.
i like yo know when you roll over a 401k to a ira-cd does it go against the maxium contribution for that year thank you tom
Tom, rollovers do not count against your annual contribution limit. So, don’t worry about maxing that out if you’re thinking about a rollover.
your kinda a pompas ass to assume she is wrong in her thinking ? my wife left her job after 18 years (walmart) and had to wait 30 days for her rollover in between that time her fund fell by $1,700 dollars. some of you need to climb down off that horse your sitting on and get out in the real world where people break a sweat to make that money. my guess is your all a bunch of retierd school teachers who use tip calulaters when you go out to eat at 4:30 for the early bird special.
I just looked at your RSS feed and it gave me an error. Can you post your RSS feed url when you have a chance? I don’t check email very often.
A 401k rollover & self directed ira is moving your eligible retirement funds, such as money invested in plans like a 401k.
Am davidson from africa, am looking for someone who want to invest his or her into meanful something…..don’t wait to let me know now…
Looks like she was the smart one…I wish I hadn’t rolled mine over, I could have paid off my mortgage with that money, and not be struggling now. Hope you learned your lesson. She had great instincts.