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Have You Changed Jobs?
Friday, 07 November 2014 16:34

Getting a new job can be exciting, but don't forget to take care of your retirement plan at your previous employer.

If you have any money left in a former employer's 401(k) plan, 403(b) TSA, 457 plan, or pension plan, then you have a choice to make.

The choices are simple:

  • Leave the money where it is (not always possible)
  • Do an IRA Rollover
  • Take a lump sum cash distribution

If your plan balance is low, your former employer may not give you the option of leaving the money where it is. In fact, they may automatically send you a distribution check after a period of time. The problem with this is that the IRS requires them to automatically withhold 20% of your balance for any income taxes due, so even if you want to put the money back into an IRA, you will have to come up with the 20% withheld in cash, or pay a 10% penalty tax on the money withheld and sent to the IRS.

If you're under age 59½, and you take a cash distribution, you may pay a 10% penalty tax, in addition to the income taxes already due.

That 10% penalty tax can be easily avoided by setting up an IRA Rollover account and having your former employer send the funds directly to your new IRA.

The automatic 20% withholding an be easily avoided this very same way.

Advantages of an IRA Rollover

  • You control the funds and can invest them as you see fit
  • You have literally unlimited choices, whereas nearly all employer sponsored retirement plans have limited choices
  • You avoid the 10% penalty tax
  • You avoid the 20% automatic withholding
  • You can choose when you retire and take distributions
  • You avoid the mandatory black-out periods, if your former employer changes plan providers
  • You can avoid the potential freeze of plan assets, if your former employer goes bankrupt

Do you have questions? Do you want to set up an IRA Rollover? I can help. Call me today at (800) 680-5596, or click here.

 

Brent D. Gardner, CLU, ChFC