Lump Sum Distribution - Wells Fargo Advantage Funds

Take a Lump Sum Distribution

Although it may be tempting, taking cash from your retirement plan is rarely a good idea. In fact, you may lose nearly half of your hard-earned investments to taxes and penalties!

Watch Out for Uncle Sam

If you aren't careful, the IRS could be the biggest beneficiary of your retirement plan investments. Taking a lump sum distribution triggers the mandatory 20% withholding for federal taxes, which means your savings go directly to Uncle Sam. On top of that, a lump sum distribution could bump you into a higher tax bracket that would slap you with even higher state and federal taxes at year-end.¹ If you are younger than age 59½, your distribution may also be subject to a 10% early withdrawal penalty.

Taking Cash Can Be Costly

Here's what's left of a $20,000 cash payout:*

10% early withdrawal penalty may be assessed if you are under age 59½.
You'll owe federal, state and local taxes on the entire distribution at year-end, since it will be considered part of your ordinary income. At the time of your disbursement, your employer must withhold 20% toward your federal tax obligation.
As you can see, 43% of the payout has been eroded by penalties and taxes.

Stretch Your Investments Instead

Rolling your retirement plan assets into an IRA allows the bulk of your investments to continue growing tax-deferred.

If you've already received a cash distribution from your plan, it may not be too late! You have 60 days to move the money into an IRA or a new qualified employer retirement plan. To avoid all taxes and penalties you will need to make up for the 20% mandatory withholding with out-of-pocket money. You can recover this money when you file your federal tax return. (You may only take advantage of this feature once per IRA per 365 days.)

Advantages of a Lump Sum Distribution

Immediate, unrestricted use of your money.

Disadvantages of a Lump Sum Distribution

Savings lose tax-deferred status.
Distribution is reduced by 20% mandatory withholding.²
Distribution may be subject to a 10% early withdrawal penalty as well as additional federal, state, and local taxes.
Lose the flexibility to move into a qualified plan or IRA (after 60 days).

¹ Distributions are taxed at applicable federal and state tax rates at the time of the distribution.
² You can make up the 20% that was withheld by your employer for federal taxes out of other savings and roll the entire amount into an IRA if you do it within 60 days of receiving your distribution. Then you can file to recover the original amount withheld by your employer when you file your federal income tax return.

Here's how a $20,000 cash payout would be broken down. The 10% early withdrawal penalty equals $20,000. $5,600 would go towards federal income tax (assuming a 28% tax bracket). $1,000 would go to state and local income tax. Your savings are reduced to $11,400 after taxes and penalties.

Back to chart.

©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.

Not FDIC Insured
No Bank Guarantee
May Lose Value

Prospectus

Wells Fargo Advantage Funds

Individual Investors · 1-800-359-3379
Investment Professionals · 1-888-877-9275
Institutional Sales Professionals · 1-866-765-0778