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Which Distribution Option Makes Sense for You?
The Bureau of Labor Statistics reports the average U.S. citizen will hold 8.6
different jobs between the ages of 18 and 32. Based on this information, it's
likely you'll be faced with the decision of what to do with a retirement plan
balance when you change employers.
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 option. If you are younger than age 59½, money in an
IRA is more accessible than money in a company-sponsored plan.
Questions to Ask
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Are there any charges associated with the account?
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Will you have more flexibility in an IRA than in a company-sponsored
plan?
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Are there advantages to consolidating money with one company?
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Will you need access to this money before age 59½?
Move Your Investments to Your New Employer's Plan
You may be able to take your account balance from the plan you are leaving and
roll it into the retirement plan with your new employer. If you do this, you
avoid paying any current taxes on the money.
Questions to Ask
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Does your new employer's plan allow you to transfer a rollover
from a previous plan?
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Do you have to be a participant or can you roll over money
even if you are not eligible for the new plan?
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Are you happy with the diversity (and performance) of funds
available in the new plan?
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
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Will fees be charged by the provider for keeping your account
balance open?
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Are there any restrictions on investment options for terminated
employees?
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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. An additional 10%
early withdrawal penalty may also apply. This option should only be considered
if you are facing a financial emergency.
Questions to Ask
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What do you need the money for?
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How will this affect your retirement income?
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Do you have other sources to cover your need for this money?
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Next Steps
Ready to roll over funds now?
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Secure Account Access Login
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