5 Costly 401(k) Rollover Mistakes Costing You Thousands (Webinar July 26)
- Angelique Solomon
- 5 days ago
- 4 min read
You’ve worked hard for decades, diligently tucking away a portion of every paycheck into your 401(k). But now that you’re changing jobs or approaching retirement, that "nest egg" is sitting in a state of limbo.
What happens next is often the difference between a secure, stress-free retirement and losing tens of thousands of dollars to unnecessary taxes, penalties, and missed opportunities. Most people treat their 401(k) rollover like a simple administrative task, but in reality, it is a major financial transition that requires a precise blueprint.
If you are currently holding an old 401(k) or planning to leave your employer soon, you cannot afford to miss our upcoming webinar.
Join Us Live: The 401(k) Blueprint: Rollovers & The Private Bank
Date: Sunday, July 26th
Time: 6:30 PM CDT
Host: Angelique Solomon
Platform: Google Meet (Educational with Live Q&A)
Registration:Reserve Your Spot Here
In the meantime, let’s look at the five most common 401(k) rollover mistakes that could be quietly draining your wealth.
1. The "Set It and Forget It" Trap: Doing Nothing
The easiest thing to do when you leave a job is… nothing. You leave the money with your former employer's plan and assume it will keep growing safely. While this is technically allowed, it is often a recipe for financial "leakage."
When you leave an account behind, you lose track of it. These are often called "orphaned" accounts. Over time, administrative fees can pile up, and you lose the ability to actively manage the investment strategy to align with your current goals. Even worse, many employers change 401(k) providers, and if they don't have your current address, your hard-earned money could end up in the state's unclaimed property fund.
The Fix: Take control of your assets. A retirement planning session can help you consolidate these old accounts so you have one clear vision for your future.
2. The 20% Withholding Trap (Indirect Rollovers)
This is perhaps the most painful mistake because it happens even when you think you're doing the right thing. If you request a check from your 401(k) provider made out to you personally, the IRS requires the provider to automatically withhold 20% for federal income taxes.
If you have $100,000 in your 401(k) and do an "indirect rollover," you’ll only receive a check for $80,000. To avoid taxes and penalties on the missing $20,000, you must deposit the full $100,000 into a new IRA within 60 days. That means you have to find $20,000 of your own cash to "bridge the gap" until you get that withholding back as a tax refund next year. If you can't come up with the cash, that $20,000 is treated as a taxable distribution.
The Fix: Always opt for a Direct Rollover (trustee-to-trustee). This ensures the money moves directly from your old plan to your new IRA or annuity without the IRS taking a 20% cut along the way.
3. Cashing Out: The Ultimate Wealth Killer
It’s tempting. You see a large balance in your 401(k), and you think about the home renovations, the debt you could pay off, or the vacation you deserve. However, cashing out is almost always the most expensive way to access your money.
If you are under age 59½, you will face an immediate 10% early withdrawal penalty on top of ordinary income taxes. Depending on your tax bracket, you could lose 30% to 50% of your total balance to the government instantly. Furthermore, you lose the power of compounded growth. That $50,000 you "cashed out" today could have been worth $200,000 by the time you actually need it in retirement.
Before you consider cashing out, check out our recent post on what to do with your 401k when leaving a job.
4. Forgetting About Roth vs. Traditional Rules
Mixing up tax buckets is a common headache for retirees. If you have a traditional 401(k) (pre-tax) and you roll it into a Roth IRA (post-tax), that entire amount is treated as taxable income in the year you make the switch.
On the flip side, if you have a Roth 401(k), you need to ensure it lands in a Roth IRA to maintain its tax-free status. New rules for 2026 regarding Roth 401(k) secrets and RMDs are changing the landscape, making it even more vital to have a professional eye on your strategy.
5. Not Having a "Destination Plan": IRA vs. Annuity
Where should the money land? Most people default to a traditional IRA at a big-box brokerage. While this offers flexibility, it also leaves your retirement savings exposed to market volatility. If the market drops 20% the year you retire, your "safe" nest egg is suddenly in jeopardy.
At Solomon Estate and Wealth Planning, we often discuss the concept of a Personal Pension. By rolling over a portion of your 401(k) into an annuity, you can create a guaranteed stream of income that you cannot outlive. Any guarantees are subject to the claims-paying ability of the issuing insurance company. It’s about moving from "growth mode" to "protection mode."
The Private Bank Concept: We also teach our clients how to use their wealth to become their own bank: a strategy known as Wealth Without Walls. This allows you to protect your assets while maintaining access to liquidity, and we will be diving deep into this during our webinar!
Don't Leave Your Future to Chance
Your 401(k) is likely your largest financial asset. Don't let a simple paperwork error or a lack of strategy cost you thousands in unnecessary taxes.
Join Angelique Solomon on July 26th at 6:30 PM CDT for "The 401(k) Blueprint." This is a free, educational webinar designed to give you the clarity and confidence you need to make the right moves. We will have a live Q&A session where you can ask your specific questions.
Whether you are 30 or 75, it is never too early: or too late: to build a legacy and protect the people you love. We look forward to seeing you there!
NPN: 20332097 States: AL, FL, GA, SC, VA, TX, OHIO Designations: L&H Phone: (334) 459-8264 Website:https://www.angeliquebenefits.com/
Tax/Legal Disclaimer:Solomon Estate and Wealth Planning does not provide tax or legal advice. Please consult with a qualified tax professional or attorney regarding your specific situation.
Financial Disclaimer:This blog post is for informational purposes only and does not constitute legal, tax, or financial advice. Every individual's financial situation is unique. Please consult with a qualified professional before making any significant changes to your retirement accounts or investment strategy.
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