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Many employers maintain tax-qualified retirement savings plans on behalf of their employees. These include 401(k), 403(b) and 457 plans, among others. If you’re changing jobs or retiring, one of the most important decisions you may face is how to handle the money you’ve accumulated in your retirement plan. You may also be considering a transfer of funds from an existing Individual Retirement Account (IRA) to another. You generally have four options to consider in making an IRA rollover. Each of these has advantages and disadvantages and the one that is best depends upon your individual circumstances.
Rolling your money into an IRA allows your assets to continue their tax-advantaged status and growth potential, the same as in your employer’s plan. In addition, an IRA often gives you access to more investment options than are typically available in an employer’s plan, as well as access to personalized investment recommendations. An IRA lets you decide how you want to manage your investments, whether that’s using an online account with which you can choose investments on your own or working with a professional who can help you choose from investment options.
Most employer-sponsored retirement plans allow you to leave your retirement savings in their plan after you terminate your employment. If you choose to leave your retirement savings in the employer’s plan, you will continue to be subject to the plan’s rules regarding investment choices, distribution options, and loan availability. You will also continue to pay any applicable fees and expenses.
If you’re joining a new company, moving your retirement savings directly into your new employer’s plan may be an option. This option may be appropriate if you’d like to keep your retirement savings together, and if you’re satisfied with investment choices and other features offered by your new employer’s plan. This alternative shares many of the same features and considerations of leaving your money with your former employer.
In general, you have the option of removing your retirement savings from an employer-sponsored plan at any time. With a few limited exceptions, all withdrawals from retirement plans are taxable as income to you in the year they are received. In addition, if you are under age 59½, there may be an additional tax equal to 10% of the amount of the distribution. While the option of withdrawing money from a retirement plan account may sound attractive at first, carefully consider the financial consequences before making such a decision. The money you withdraw will be subject to a mandatory 20% federal tax withholding. If you absolutely must access the money, you may want to consider withdrawing only what you need until you can find other sources of cash. In addition, by withdrawing assets from your retirement plan, you will lose the ability to have them grow tax-deferred.
A decision to roll over funds from an employer-sponsored retirement plan may be one of the most important choices you will make about funding your retirement. You should consider all of the above before you make any move. You should also consider consulting with your personal tax professional and the administrator of your current plan to see if there are any other factors that you should take into account. There are many other sources of information about IRA rollovers and the considerations that may come into play when you make your decision. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), a regulatory agency for broker-dealers, have both published information about this process. You may want to review them at the following websites:
SEC: investor.gov/introduction-investingFINRA: finra.org/investors/alerts/ira-rollover-10-tips-making-sound-decision
You should consider features such as investment choices, fees and expenses, services offered, potential tax consequences such as withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock, both at the time you leave your job and afterward. Your financial professional can help educate you regarding your choices in order to select the one that makes the most sense for your specific situation. Be sure to speak with your current retirement plan administrator and tax professional before taking any action, as the decisions you make now can have consequences well into the future. The more informed you are, the more confident you can feel that your decision is the right one for you.
Neither Cetera Advisor Networks or any of its affiliates, or your financial professional, are offering you tax advice with respect to any distribution from an employer-sponsored retirement plan or other retirement plan. Any action you take with respect to your retirement savings may have significant tax implications. We encourage you to consult with your tax professional and the administrator of your retirement plan before you take any action with respect to your retirement account.