Departing workers take money and run

Almost half, or 45 percent, of all workers who left their employer last year opted to cash out their 401(k) savings, according to a new study.

Cash-outs are most acute among younger employees and those with small balances, according to the study published last week by Lincolnshire, Ill., consulting firm Hewitt Associates. And while new rules implemented this year to limit cash distributions among people with small balances should help lessen cash-outs, they will do little to stop the problem, said Lori Lucas, a defined-contribution consultant with Hewitt.

When workers leave a job, they generally have four options for their employer-provided 401(k) plan. They can leave the money in the plan, roll the money over to an individual retirement account, roll the money to another 401(k) plan or take the money in a cash distribution.

By cashing out, people are taxed income on the withdrawal. A 10 percent penalty tax also is imposed on withdrawals made by people under age 59 and a half.

Yet the disadvantages associated with cash-outs don’t seem to be deterring workers, especially younger workers and those with small balances. Two-thirds of departing workers ages 20 to 29 years old took their 401(k) money in cash in 2004, compared with 49 percent of workers ages 30 to 39 and 42 percent of workers ages 40 to 49.

Meanwhile, 73 percent of workers with 401(k) balances of less than $10,000 took a cash distribution upon leaving their employers last year, compared with 31 percent with balances between $10,000 and $20,000.

The world, according to Craig

On the Internet, Craigslist ( www.craigslist.com) is a phenomenon. More than 10 million people each month visit the online community to rent apartments, find jobs, sell or buy items or to find love, via personal ads.

Craigslist users are often impressed by their painless and positive transactions with each other, despite how rampant financial scams and identity theft have become. It’s for these reasons that the founder of Craigslist, Craig Newmark, wants people to stay smart when it comes to making transactions through his site. Here are his tips for buying and selling:

• Deal only with local people you can meet in person. This alone will minimize your chance of being scammed.

• Avoid fake cashier’s checks and money orders, which are common. Many come from West Africa, says Newmark.

• Don’t, under any circumstances, wire money to a buyer or seller. “Payment schemes involving wire transfer are mostly fraudulent,” he says.

• Be wary of any reference to Craigslist’s “buyer protection” or “certified seller;” Craigslist plays no part in its listed transactions.

Keep up that coverage

You passed your finals and graduated from college. The good news: The job market for college graduates is improving.

The bad news: Your new job may not include health insurance, at least not right away. Many company-provided insurance policies don’t kick in until you’ve been on the job for a few months. And some small businesses don’t provide any coverage for their employees.

In most cases, you’re only covered by your parents’ policy until age 23, and even then you have to be a full-time student.

Many graduates don’t inquire about benefits when offered their first job. But if things do go wrong, forgoing health insurance could imperil your financial future and your health. A catastrophic illness or accident “can absolutely bankrupt somebody in a year’s time,” says Elizabeth Jetton, a financial planner in Atlanta. And if you develop a serious illness while you’re uninsured, you may not be able to get health insurance in the future.

Some ways to make sure you’re covered in case of a medical emergency:

• Consider all your options. A growing number of employers now offer consumer-driven plans, which generally charge lower premiums in exchange for a high deductible. If you’re healthy and don’t need to take prescription drugs on a regular basis, a consumer-driven plan could save you money, Jetton says. But make sure you put some savings aside to cover your deductible, she adds.

• Look into buying your own policy. If you have to wait a few months before you’re eligible for insurance, consider buying a short-term policy from a private insurer. These plans typically offer coverage for six months to a year and are easy to get and affordable. They usually cover major accidents and illnesses but don’t pay for preventive care, physicals or dental care.

• Ask your parents if they’re willing to help. Young and healthy workers can obtain catastrophic insurance relatively cheaply, but many are still hard-pressed to pay the premiums and deductibles.