At some point, many people will find themselves faced with the decision of what to do with their retirement assets, whether it is 401(k), 403(b), 457(b), or IRA assets. This happens when people change jobs, employers, or retiring. Ideally, it is best to choose a strategy meeting your retirement needs, minimizes the impact from taxes and avoids penalties.
Leave it where it is
Some people find it easier to leave assets in their previous employer's plan, if possible. This would be ideal to take advantage of certain investment options in the current plan, such as that particular company's stock. These assets will remain tax deferred and can later be moved to a new employer's qualified plan or an IRA.
Take the taxable distribution
Depending on the situation, withdrawing funds from the current retirement plan may be an option. Keep in mind, upon taking the distributions from the account it will be subject to ordinary state (if applicable) and federal income taxes. Additionally, if taken before age 59½, a 10 percent IRS penalty may apply.
Roll it over
Another possible solution is to directly roll the entire distribution into a new IRA, an employer-sponsored 401(k) or qualified account. As long as it is rolled into another qualified account, there typically will be no penalties or taxes. Generally speaking, rolling the assets to an IRA gives the individual more investment options and is usually lower in fees than most typical employer sponsored plans (depending on how the investment and plan fees are calculated). Some financial companies, depending where the assets are rolled to exactly will bonus the account anywhere between 3percent and 5 percent just for moving the money to them. In other words, by moving the money to that particular company that offers the bonus you can immediately boost your principal amount by anywhere between 3-5 percent.
Additionally, some companies will also guarantee your original investment, depending on how the money is moved and additional fees may apply. So if $100,000 was invested, the company would allow uncapped gains in the market, but the original $100,000 investment would be guaranteed.
Please note: Rollovers must be completed no later than the 60th day after the day the distribution is received. Please meet with a CPA or tax professional before making any decisions.
I encourage my readers to call, email, or write in with any questions or comments.
Andrew Martin
542-4803
7282 Plantation Rd. Suite 400
Pensacola, FL 32504
amartin@ft.nyl.com
This article originally appeared on Santa Rosa Press Gazette: Don’t say good-bye to your investment