Distribution Options for Your 401(k)

When you retire, you'll probably be faced with the decision of what to do with your retirement plan balance.

While everyone's situation is different, this list of distribution options may help you determine what makes sense for you today – and for your future. Each option is followed by a series of questions you may want to ask before making a choice.

Roll Your Investments Into an IRA

This option allows you to avoid negative tax consequences while allowing you to invest the money into an IRA account of your choice. The choices of IRA investment vehicles are many, and you should be able to match your investing goal closely by choosing the right fund.

Questions to Ask

  • Are there any charges associated with the account?
  • Will you have more flexibility in an IRA than in a company-sponsored plan?
  • Are there advantages to consolidating money with one company?

Leave Your Assets Where They Are

If you have a balance of $5,000 or more in the plan, you cannot be forced to take a distribution. If you leave the money in the plan, you will not have to pay any immediate taxes and the money will continue to grow in the account tax free. However, your fund choices and transaction activity may be limited.

Questions to Ask

  • Will fees be charged by the provider for keeping your account balance open?
  • Are there any restrictions on investment options for terminated employees?
  • Will you still be able to transfer money among your investment options?

Take a Lump Sum Distribution

You can take the distribution – payable to you – and suffer the tax consequences. At a minimum, an automatic 20% withholding tax will apply. This option should only be considered if you are facing a financial emergency.

Questions to Ask

  • What do you need the money for?
  • How will this affect your retirement income?
  • Do you have other sources to cover your need for this money?

Any tax or legal information in this website is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. Wells Fargo Funds Management, LLC, Wells Fargo Funds Distributor, LLC, nor any of their representatives may give legal or tax advice.

©2013 Wells Fargo Funds Management, LLC. All rights reserved. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.

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