With PHIL ANDERSON
With just some basic preparation, you and your financial planner could have your retirement fund trained to overcome obstacles with the grace of a champion pedigree.
Is it possible to train your retirement plan? We think so.
Maybe you’re about to change jobs, change companies or change your career completely. Whatever change is afoot, we don’t have to remind you how important it is to keep an eye on your retirement funds during tumultuous times. Assets for your retirement should be able to respond to any possible changes with ease. All it takes is a little training.
If you’re changing jobs and have an existing retirement plan, such as a 401(k), you should already have a Summary Plan Description in your possession. This will describe your retirement plan and the options available to you, regarding your old (or, soon to be old) company’s plan. You want to share this document with a financial professional so the two of you can decide what option fits you best. Many companies have restrictions on what can and can’t be done with your retirement fund. As with most financial planning, a little education goes a long way, and knowing the details of your plan will help make the transition a bit smoother.
Generally, you’ll have three major options for your retirement fund when changing jobs. You can withdraw your investment savings and keep the money as a lump sum (sit), you can leave the money where it is (stay), or you can “roll over” your retirement savings into another retirement plan or an IRA. Each option has its pros and cons. Depending on your situation in life and in your career, you’ll want to consult a financial consultant and choose the option that is most suitable for your situation.
If you choose to withdraw your money in a lump sum from a previous employer’s retirement fund, your employer is required to take a 20 percent withholding from your lump sum, and if you are under age 59½, you may also be forced to pay a 10 percent penalty tax. You may roll over the lump sum and avoid the penalty, provided that you deposit the funds in an IRA or another employer plan within 60 days. You will have to make up the additional 20 percent withheld by your employer. The 20 percent withholding will be deducted from your reported income when your taxes are due.
Leaving the money in your current plan may be an option when changing jobs or companies (depending on your plan’s policy, your age and the amount of your balance). However, you should be aware of any possible regulations or restrictions your old company has placed on your money in that retirement plan.
If you choose to roll it over, you may have the option of rolling your assets into either an IRA, a Roth IRA or your new employer’s plan. However, to avoid paying taxes and penalties, you should have these assets transferred directly to another IRA custodian. Once a rollover has been put into a Roth, you cannot roll the Roth into another employee-sponsored retirement plan.
These are just the basic options you may have when changing careers and retirement plans. Deciding what to do with your retirement savings when changing companies or careers is one of the most crucial decisions you make. It is important to consult your tax professional before taking a distribution. A financial professional will also make sure you’re aware of the many options available to you. By being prepared in advance, you’ll know when it comes time to confront change, you’ll be ready.
This column is provided and paid for by Phil Anderson, as a service to the Winona area. Phil Anderson is the owner of Financial Services of Winona. He is a CERTIFIED FINANCIAL PLANNER™ and can be reached at 507-454-2355.
Securities America and its advisors do not provide tax or legal advice. Please consult with your tax or legal professional regarding your individual situation.
Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Financial Services of Winona and Securities America Companies are separate entities.
Written by Securities America for distribution by Phillip L. Anderson.