Is cashing out a 401(k) the biggest retirement mistake you could make?

According to a new Fidelity Investments study, 35 percent of workers who left their jobs last year cashed out their retirement savings instead of rolling over their money into a new tax-deferred account. The trend was highest among individuals ages 20 to 39, as 41 percent of them cashed out their accounts after leaving their place of employment. This is often referred to as the biggest retirement mistake that a person can make, but is that really the case?

When you cash out a 401(k) before you reach the age of 59 and a half, you not only face taxation on the income, but also a penalty fee from the federal government. 

When employees move from one job to another, they have the option of moving their 401(k) to their new company's plan, but let's face it, a 401(k) from any provider doesn't provide the flexibility you need to adequately prepare for retirement. You have no choice of the stocks that the plan invests in and on top of that, you'll forever be paying fees to the fund's manager. Depending on how much you contribute monthly, you could barely be breaking even rather than growing any considerable wealth. 

It's also possible that a recently laid off employee may have no choice about cashing out an account. With today's up and down job market, someone may need access to those funds to keep up their standard of living. 

Job or no job, however, anyone can take control of their retirement planning strategies and leave the world of employer- and government-sponsored retirement plans behind. One of the best ways to save is to use a Roth IRA. Unlike 401(k)s or traditional tax-deferred plans, contributions to Roth accounts are not tax deductible. Withdrawals, however, are tax free.

To preserve your wealth, consider thinking beyond traditional strategies and exploring the many retirement income options available to you.