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I'm nearing retirement ...

 

Learn about your distribution options before you retire.

You've probably dreamed about how to spend your free time after you stop working. Most people dream about spending time with family, traveling, playing golf, gardening and other pursuits. But what many pre-retirees don't do is think about what happens to their retirement assets after they leave their job. Do they cash out, roll it over into an IRA or simply leave it in the plan?



• Leave your money in the plan. Many people believe they have to take the money from their retirement plan as soon as they retire - which is not true. In fact, some companies offer installment payment options so that the money never has to leave a retired employee's account.

• Direct rollover to an Individual Retirement Account (IRA). Another safe option is to roll the money over to an IRA, which will give you many more investment options and flexible withdrawal schedules. On the other hand, having to select from tens of thousands of mutual funds and stocks could be overwhelming. Your plan representative will be able to advise you on the rollover option even if it is outside of your retirement account.

• Take a distribution. Unlike the first two options, taking the money in cash can be risky - and expensive. Cashing out your retirement plan will trigger an immediate tax liability, and it's likely you will have to claim the amount withdrawn as income on your tax returns. If you have a sizable retirement account, taking the money in cash could result in a tremendous tax burden.



Any money remaining after taxes would then be left for you to manage in either a checking or savings account. And, although some accounts do pay interest, the amount is usually not high enough to offset your income needs and inflation. The best advice is to spend time with your financial planner or the plan's representative to determine the best way for you to proceed into retirement.

 

The information contained herein is not intended to be, nor should it be construed as tax advice. Consult a tax professional for tax advice.

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