"I am always amazed by the number of people who cash out their plan when they leave their previous employer," Gordon says. "I hear excuses like, 'It was easier than rolling it over,' 'I needed the money for moving expenses,' or, the best, 'I used the money to fund my vacation before I started the new job.'"
Cashing out at 59 ½ years of age or younger, he says, carries a 10 percent penalty. "It doesn't make sense to take the funds on which you have been earning less than 2 percent and pay a guaranteed penalty of 10 percent," says Gordon.
Of course, this would be in addition to the taxes you would owe.
This also doesn't take into account the returns you forfeit by not staying invested. Even small amounts cashed out when you're young can prevent you from amassing a large nest egg. For example, if you had kept $5,000 in your retirement account 20 years ago instead of cashing it out, that amount could have grown to nearly $14,590 today, assuming a 5.5 percent annualized return.
While the last 10 years or so have been a challenge for investors, the stock market's historical returns have rewarded them.