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401k Rollover Options when Retiring or Changing Jobs

Categories: Finance, General Interest

When you change jobs or retire, you’ll face one of the most important financial decisions you will ever need to make: what do I do with my company retirement plan or 401k account? If you make the wrong decision, the IRS could take 20-30% of your retirement account balance.

The amount you’ve saved in your company’s retirement plan or 401k account could represent the largest asset you own. Your investment may represent years of hard-earned savings – and be a sizable part of your overall financial strategy during retirement. If you are eligible to take a distribution from the plan, make sure you know your distribution options and the tax consequences involved with each option before withdrawing funds.

There are typically three different options when retiring your 401k:

1) You can take the money as a lump sum, paid directly to you. However, your employer will be required to withhold 20 percent of the account balance for income tax purposes. In addition, if you are under the age of 59 ½, you will likely be subject to an additional 10 percent IRS penalty.

2) Many employers offer an annuitization option, allowing you to convert your retirement account balance into a series of monthly lifetime income payments. However, you give up control of your principal balance and you are stuck with the limited payment options offered through your employer.

3) A more popular option is to initiate a direct rollover of all retirement plan and 401k assets to an Individual Retirement Account (IRA). This option allows you to maintain complete control over you money, avoid the 20% withholding and continue the tax deferred status of your funds. You will only pay income tax on the money you withdraw from the IRA, if and when you decide to withdraw it.

Helping our clients preserve the tax deferred status of their company retirement plan assets and 401k accounts, by utilizing a direct rollover IRA, is something that we take very seriously at AnnuityAdvantage.

We’d be happy to answer any additional questions you may have, discuss all of your options and help you determine the right 401k rollover decision for your unique situation and needs. Our Annuity Specialists will take the time to break down and explain all of your options when it comes to this very important decision, as well as provide the guidance of an experienced professional to help you through the process. Give us a call today to learn more, and how working together, we can help make a positive impact on your retirement.