Investment Tutorial

8. Career Changes – What to do with your 401(k)

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Career Changes – What to do with your 401(k)

Taking a new job? What are you going to do with your 401(k) account? Take your 401(k) contributions in cash? You may want to reconsider.

The 401(k) is a tax-deferred retirement savings vehicle. Pretax individual retirement accounts may carry significant tax consequences for investors when withdrawing funds. Investors will incur penalties for withdrawing funds from pretax individual retirement accounts prior to reaching age 59 1/2. If you take the contributions before the age of 59 ½ you will automatically incur a penalty of 10%. Therefore, if your 401(k) is worth $10,000 and you decide to take the entire account in cash, it will be taxed at your tax rate plus 10%. For individuals within the top tax bracket (39.6%) this means they would ultimately only receive $5,400: $10,000 x 49.6%. An unrecoverable loss of almost half of your account value! Depending upon the investor's tax situation, this could represent a significant difference.

While your contributions and capital gains will be taxed as income when withdrawn after 59 1/2.

The chart above shows the difference in ending value between a $10,000 401(k) distribution “rolled” into a tax-deferred Rollover IRA and the same $10,000 taken in cash and invested ($5,400 after penalties and taxes) with an 8% annual rate of return over a 20 year period. The opportunity lost due to the payment of taxes is an amazing $21,440!

*Illustrations shown and returns do not reflect the results or performance of any particular investment or mutual fund.

**Return rates may vary over time and the potential for higher rates of return involves a higher degree of risk to principal.

***Shares of a mutual fund are not deposits of, or obligations of, or guaranteed by, any bank or its affiliates, nor are they federally insured by the FDIC. Investments in the funds involve investment risk, including the possible loss of principal.

****The funds do not offer tax advice. Since individual tax situations vary, this strategy may not be suitable for all investors. Please consult your tax advisor to see how this information pertains to you.
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Effective January 31, 2011, the Fund's Form N-MFP filings will be made publicly available via the SEC website and can be obtained by clicking the following link: http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000864508&type=N-MFP&dateb=&count=20&scd=filings


Mutual funds, annuities, and other investments are:



  • not insured or guaranteed by the FDIC or by any other government agency or government sponsored agency of the federal government of any state;
  • not deposits, obligations of, or guaranteed by Cavanal Hill Investment Management, Inc., any affiliated bank or other affiliate
  • subject to investment risks, including possible loss of the principal amount invested


An investor should consider the fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information about the investment company can be found in the fund's prospectus. To obtain a prospectus, please call 1-800-762-7085. Please read the prospectus carefully before investing.



Distributor: BOSC, Inc., a subsidiary of BOK Financial Corp.