Changing jobs? Don't crack open that 401(k) vault

— -- Younger generations change jobs more often than Baby Boomers do, and when they do, they're more likely than the population as a whole to cash out their 401(k) accounts, according to Hewitt Associates.

They're young enough, the thinking goes, to make up the savings later. What many don't realize is that cashing out a retirement account when you're young not only can trigger taxes and penalties, but it also imperils your financial future.

Noah Velthouse, 28, and his wife chose to cash out their 401(k)s when they moved last year from Charleston, S.C., for teaching jobs in Indianapolis, and used it for a down payment on a home. "We didn't get a lot of advice," Velthouse says. "But it was only a year's worth of 401(k), so I don't think it will affect our retirement that much."

"When there is not much in the retirement plan, many people just view it as found money," says Pamela Hess, director of retirement research at Hewitt. "But a little bit of money does make a big difference" in preparing for retirement, even when it's decades away.

Too much debt

Gen X and Gen Y consumers often recognize that they accumulate too much debt, according to a recent survey of adults ages 21 to 41 by Fidelity Investments. In that group, 51% said financial priorities, including mortgage bills and credit card debt, prevent them from saving for retirement. These young adults often face an ongoing struggle with debt management, says Pam Norley, executive vice president of Fidelity Consulting Group.

Of the group surveyed, 40% said they cashed out their workplace retirement plan when they switched jobs. Few had asked for guidance. And more than half said they are now unhappy with their decision.

When Frank DeFina, 27, changed jobs this year, he cashed out his 401(k) account to pay off debt.

"I just wanted to free up my assets and eliminate my debt so that I have more money for disposable income," says DeFina, a sales engineer in Boston. "It could be wrong, but this is my thinking."