People are switching jobs more frequently now, than ever. According to The Bureau of Labor Statistics, the average person will seek new employment several times during their career with most workers spending less than five years with each employer.

These work transitions can consist of many perks like pay increases, health insurance, and new retirement programs. Other times, a new job can be a catapult into unchartered territory.

Regardless of the circumstances, you’ll face a critical decision: What should you do with the savings in your 401k?

This calculator was developed to help 401k participants navigate this difficult decision. This tool allows you to see the consquences of spending or saving your 401k balance when changing employment. It can show you the taxes and penalties you might pay if you wanted to withdraw and what you can gain if you continue investing.

401k is an employer-sponsored retirement savings plan. The program boasts a multitude of benefits, such as pre-tax (or post-tax) contributions and tax-deferred investment growth.

With a 401k plan, you'll witness the power of compound interest from your investment returns, and won’t pay taxes until you are ready to make a withdrawal.

These are just the basics of the plan though. To learn more about the considerations, plus what your account could be worth, click here.

Whether you are new or seasoned in the workforce, you probably want to make the most of your earnings.

Cashing out your savings is rarely recommended if you are under 55 years old. A substantial portion of your funds would go towards taxes and penalties, which could eat away at your profits. For some workers, that means losing up to 50% of the wtihdrawal to taxes and penalties.

For instance, let’s say you saved up $250,000 in your 401k by the age of 45. If you decided to withdraw your earnings, you could owe $100,000 in taxes and penalties. Which means you would only have $150,000 remaining.

Cashing out prematurely can really affect your quality of life in later years. Younger workers can compromise their foundation for retirement and losing valuable years of compounding. Older workers that cash out prematurely may never recoup their losses. Social security will provide some benefit, but was never intended to be a primary source of income.

Thus, living on social security alone could be a challenge.

There are many strategies that are more beneficial then cashing out your 401k savings. You could maintain the funds in their current program or transfer the account to your new employer. Alternatively, you could roll over into an Individual Retirement Account.

Leaving the 401k with your previous employer

One option is to leave your money where it is. Most plan administrators will allow you to keep your savings in their program for a fee, but won't permit you to make any more deposits. Typically, the cost can be two to three percent of the account balance per year. Since the fees will reduce your total ROI, this should only be considered as a temporary solution.

By pursing this option, your investment options will be limited and you will have to keep tabs on the company. There is no guarantee that this employer will be around until your retirement - which could make it a hassle to track down your money after many years. However, if you are retiring soon and believe things will stay relatively the same until then, this could be worthwhile.

Taking the 401k with you

It’s typically better to transfer your 401k account to your new employer versus leaving it with the previous one. You will be provided with new investments, better returns, and the ability to continue saving. If your employer offers matching contributions there is a lot more you could gain from the arrangement. Plus, it’s much easier to keep track of your savings.

Rolling over to an IRA

Transferring your savings to an IRA is a good option when your new employer doesn't offer a group 401k plan. You’ll experience friendlier fees and a greater variety of investment options. There is also more flexibility in taking withdrawals from an IRA than a 401k.

With an IRA, you can make a penalty-free withdrawal when purchasing your first home. The penalty-free allowance also extends to paying for post-secondary education and health insurance when unemployed. It can be intimidating, but you don’t have to be an experienced investor to have a valuable IRA.

The 401(K) Spend It or Save It calculator consists of two parts: a questionnaire and a results section. You will need to provide some basic details about your 401k savings to get an accurate results. Let’s go over this together.

First, you will have to summarize your retirement account, beginning with your current balance and rate of return. Then, you can add your age and the age you intend to retire. The final step is to document your federal and state income tax rates.

Once the questionnaire is completed, you can check out various reports concerning your 401k options.

The first report is a graph comparing the value of your savings if you cash out now or continuing to save. Next, you'll find a more detailed breakdown of the taxes, penalties, and lost interest from cashing out your 401k. We also provide you with a result summary, so you can see the advantages and disadvantages to both saving and spending in the last grids.