Understanding your retirement plan distribution options

If you're changing jobs or retiring, one of the most important decisions you may face is how to handle the money you've saved in your employer-sponsored retirement plans, such as a 401(k), 403(b) or governmental 457(b). When you leave your employer, you generally have four options for what to do. Each of these options has advantages and disadvantages and the one that is best depends upon your individual circumstances. You should consider features, such as investment options, fees and expenses, and services offered.

We can help you understand your options and present strategies that help you make well-informed decisions that will serve your financial needs; both today and in the years to come.

Generally your options include:

Rollover retirement plan assets to an IRA

Advantages
Disadvantages
  • Avoids current taxes and possible 10% penalty 

  • Continued tax-deferred growth

  • Helps consolidate assets

  • May have access to more investments

  • Fees and expenses may be higher in an IRA compared to a qualified plan

  • IRAs do not offer loans

  • Lose the benefit of being able to delay RMDs 


Maintain your assets in your former employer's plan

Advantages
Disadvantages
  • Your money investment choices are familiar to you

  • Avoid current taxes and a possible 10% penalty 

  • If you leave your job between ages 55 and 59½, you generally can take penalty-free withdrawals from the plan  

  • You will no longer have the ability to make contributions to the plan

  • You may no longer have access to the loan feature

  • Plan may offer limited or less attractive investment options 

  • Plan may offer less distribution flexibility for your beneficiaries 


Rollover retirement plan assets to your new employer's retirement plan

Advantages
Disadvantages
  • Avoids current taxes and possible 10% penalty

  • Continued tax-deferred growth

  • If you leave our job at 55 or older, you may be able to take penalty-free withdrawals from the plan

  • No RMDs until you retire, unless you are a 5% owner of the company

  • New plan may impose restriction on access to funds

  • New plan may not accept rollovers or may have a waiting period before rollover is allowed 
    > See our Rollover Portability Chart

  • Beneficiaries may not have access to all distribution options allowed by law

  • If new plan does not offer Roth elective deferrals or after-tax contributions, current after tax or Roth plan assets cannot be rolled into the new plan


Distribute all assets in a lump sum distribution

Advantages
Disadvantages
  • You must pay ordinary income taxes on the distribution and potentially a penalty of 10% if you are under age 59½ or left your job prior to age 55 

  • Taxable distribution may put you in a higher tax bracket

  • If you choose to take one lump sum, you will only receive 80% of the balance, the other 20% is considered a pre-payment of Federal taxes

  • Lose tax-deferred growth on traditional pre-tax savings and Roth deferrals lose future tax-free growth 


Split your distribution

You are not limited to use only one of these options. Most retirement plans allow you to split your distribution by taking a combination of the options above.

Other considerations

Other key considerations include fees and expenses associated with the retirement plan, IRA and/or NUA. Review your plan statements for more information.

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Let's connect

Contact me today to discuss how we can help assist you in reviewing how rollover or distribution options for your qualified plan assets may affect your retirement and long term goals.