Have Money in a Retirement Plan?
You Can Take It with You
When you're cleaning out your desk and packing up boxes for a career change or retirement, remember to pack up your retirement plan savings as well.
Making a transition from job to job – no matter the reason – can be a frenzied process. Sometimes the last thing you want to worry about is what to do with the money in your retirement plan. But taking educated steps can ensure that your vested retirement money remains in your control.
You can transfer the funds into an approved retirement account or "cash out" and take a lump sum payment. Taking the cash can be tempting, but also very costly. You'll actually receive only a portion of your balance, because you'll owe taxes at rates as high as 35% and you may have to pay a 10% penalty if you're younger than age 55. Despite the penalties, 45% of Americans withdraw the money from their account early, according to a 2005 study by Hewitt Associates.*
Roll Over for Growth
You may want to think about keeping
your investment options open –
allowing your money to grow into
a comfortable retirement nest egg by
initiating a direct or standard rollover
into a new IRA. This will allow your
money to continue growing taxdeferred.**
For a direct rollover, your
plan's distribution check may, at your
employer's discretion, be given to you
or sent directly to the trustee of your
new IRA or plan. In either case, the
rollover check must be made payable
to the trustee.
In a standard rollover, the check is made payable to you and you make your own arrangements to roll over the funds into an IRA or other plan within 60 days of receiving the check. The drawback to this type of rollover is that your former employer is required by law to withhold 20% of your distribution for federal income taxes. To avoid a taxable distribution, you'll have to come up with that amount from another source in order to complete the rollover within the 60-day period.
Reap Retirement Rewards
You are allowed to roll over the
money into a new or existing IRA.
These assets can later be transferred to
a future employer's eligible retirement
plan, should you choose to do so.
For more information or to further discuss your options for rolling over your retirement plan assets, see one of the Investment Services Representatives with Wings Financial Advisors, LLC.
| * | Source: "Hewitt Study Shows Half of U.S. Workers Cash Out of 401(k) Plans When Leaving Jobs," Hewitt Associates, July 25, 2005. |
| ** | Withdrawals in retirement will be taxed as ordinary
income. Early withdrawals may be subject to a 10% IRS penalty. |
Investment products:
- Not federally insured.
- Not a deposit of this financial institution.
- May lose value.
This publication does not constitute legal, accounting or other professional advice. Although it is intended to be accurate, neither the publisher nor any other party assumes liability for loss or damage due to reliance on this material. Images may be from one or more of these sources: ©JupiterImages, ©Getty, ©iStock, ©PhotoSpin.