If
you’re quitting your job for another position or retiring completely, you
probably have a zillion things on your mind. But don’t forget about the assets
in your 401(k) plan or other qualified plan at work. There are several options
to consider.
· Leave the money where
it is. But remember that you won’t be connected any longer with the employer
providing the plan.
· Cash in the funds at a
hefty tax price. Generally, the payout will be taxed at ordinary income rates,
now reaching as high as 39.6%. Plus, you’ll be assessed a 10% tax penalty if
you’re under age 59½, unless a special exception applies.
· Roll over the funds to
a traditional IRA (or another qualified plan if one is available at a new job).
The rollover is exempt from income tax if it is completed within 60 days of the
distribution.
The
rollover-to-an-IRA option is often preferable since it preserves your nest egg
without any tax erosion while offering a wide array of investment choices. But
this tax-saving technique is not without its perils.
Notably,
if you don’t meet the 60-day deadline, the payout is treated as a taxable
distribution. Also, if you receive the funds, the plan administrator will
withhold tax at a 20% rate, even if you intend to roll over within 60 days.
Thus, you can’t recoup this amount until you file your tax return for the year
of the transfer. To avoid withholding, arrange a “trustee-to-trustee transfer”
to the IRA where your hands never touch the money. Finally, if you roll over
funds to a Roth IRA instead of a traditional IRA, you must pay tax like any
other Roth conversion.
Review
your options and choose what’s right for you. Contact us if you would like help
investigating the alternatives.
Call us at (219)
769-3616 with your questions, or email them to tlynch@swartz-retson.com
No comments:
Post a Comment