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By Choice or Chance, Know Your Options 

Whether you are starting a new job or moving into retirement, the excitement - and stress - may divert your attention away from tying up loose ends related to your retirement plan at your previous employer. It is essential to understand your distribution options as well as common pitfalls to avoid. 

Complete a rollover into an IRA 

Complete a rollover into an IRA 

Directly transferring your distribution to an IRA allows you to avoid the mandatory 20% tax withholding and potential early withdrawal penalties, and you will defer income taxes on the distribution until you make withdrawals from the rollover IRA.

If you choose to directly transfer your retirement plan monies, the assets will move from the qualified employer plan directly to your rollover IRA.

If you choose a lump sum distribution from your employer-sponsored plan you will have 60 days from the date you receive the funds to deposit them into a rollover IRA. This is called an indirect rollover and it is important to note that the 20% tax withholding will apply to the distribution, so you need to make up the difference before depositing the money to avoid taxes and penalties.

Transfer the distribution directly to your new employer's plan

Transfer the distribution directly to your new employer's plan

If you are changing jobs, your new employer may allow you to transfer your distribution directly to their retirement plan. A transfer allows you to avoid the mandatory 20% tax withholding and potential early withdrawal penalties, and you will defer income taxes on your assets until you make withdrawals from your new employer’s plan.

Leave assets in your former employer's plan 

Leave assets in your former employer's plan 

If your balance meets current governmental limits and the employer’s plan document provisions, you may be able to leave the assets in the current plan. The sponsoring employer retains responsibility for selecting investments available to you. The plan document controls distribution and beneficiary options.

Workers are also, in alarmingly high rates, spending down or cashing out their retirement plans. Why?  

Workers are also, in alarmingly high rates, spending down or cashing out their retirement plans. Why?  

  • To fill a gap between the last check from previous employer and first check from new employer. 
  • To fund time off between jobs.
  • Because that big chunk of money is irresistible. 
  • Because it may seem like a hassle to make arrangements to reinvest or move money. 

While the rationale to spend your retirement savings may make sense at the time, the reality is that doing so can leave you with 20-25% less money at retirement. What’s more, distributions will be subject to a federal withholding tax of 20% and, if you withdraw the funds before age 55, you’ll also pay a 10% early distribution penalty*

 Let me help with the decision making process. Let's get together and we can talk about the potential long-term effects of keeping and/or spending your distribution.

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*Exemptions may apply.


This is being provided as a general source of information and is not intended as investment, financial, or tax advice, nor is it a recommendation of any kind. Please consult your financial and tax advisors about your particular situation.