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 Examining the Choices

If you leave your employer, depending upon the type of the employer’s plan and the terms of the plan, you may have the opportunity to either receive assets from the plan or leave them in the plan. The sections below summarizes the choices available including the ability to rollover the assets.
CASH
DISTRIBUTION		 LEAVE MONEY IN
EMPLOYER'S PLAN		 ROLLING INTO
AN IRA
Take a Cash
Distribution		 Current
Plan		 New
Plan		 Direct
Rollover		 Indirect
Rollover
Tax Liabilities
  • Mandatory 20% federal withholding.
  • Additional federal, state & local taxes.
  • 10% premature distribution penalty if under age 591/2 and no exception applies.
    		•
  • None
    		•
  • None
    		•
  • None
    		•
  • Mandatory 20% federal withholding.
  • Additional federal, state & local taxes.
  • 10% premature distribution penalty if under age 591/2.
    		•
    Future of
    Distribution
  • You may spend or invest the remainder of the distribution after taxes and penalties.
  • The net check may be invested in a taxable investment or tax-deferred annuity.
    		•
  • Limited to the investment choices offered by current plan.
  • Money continues to grow tax deferred.
  • Additional restrictions may apply.
    		•
  • Limited to the investment choices offered by new plan.
  • Money continues to grow tax deferred.
  • Additional restrictions may apply.
    		•
  • Access to a variety of investments.
  • 100% of money continues to grow tax deferred.
    		•
  • Access to a variety of investments.
  • 80% of distribution is rolled over in 60 days.
  • 20% may be made up from personal assets and rolled over within 60 days.
    		•
    Access to
    Money
  • NA
    		•
  • Access to money may be restricted by plan.
  • 20% mandatory federal withholding for distributions not rolled over.
  • Distributions taxed as ordinary income.
  • Distributions may be subject to 10% penalty if under age 591/2 or if client seperates from service prior to age 55.
    		•
  • Access to money may be restricted by plan.
  • 20% mandatory federal withholding for distributions not rolled over.
  • Distributions taxed as ordinary income.
  • Distributions may be subject to 10% penalty if under age 591/2 or if client seperates from service prior to age 55.
    		•
  • Full access to money.
  • Distributions taxed as ordinary income.
  • Distributions may be subject to 10% penalty if under the age of 591/2.
    		•
  • Full access to money.
  • Distributions taxed as ordinary income.
  • Distributions may be subject to 10% penalty if under the age of 591/2.
    		•
    Additional
    Considerations
  • Lose the opportunity for the assets to grow tax deferred
  • Creditors can reach the assets
    		•
  • Restrictions on length of time money can be in plan.
  • Investment choices and number of transfers may be limited.
  • Limited ability to designate beneficiaries (i.e. who receives assets if you die)
  • Creditors cannot reach the assets.
    		•
  • Some employers don't accept rollover money.
  • Eligibility may depend on length of service.
  • Limited ability to designate beneficiaries (i.e. who receives assets if you die)
  • Creditors cannot reach the assets
    		•
  • Low cost and easy set-up process.
  • Ability to transfer between investment choices
  • Flexibility to designate beneficiaries (i.e. who receives assets if you die)
  • Creditors may not be able to reach the assets.
    		•
  • Low cost and easy set-up process.
  • Ability to transfer between investment choices.
  • Flexibility to designate beneficiaries (i.e. who receives assets if you die)
  • Creditors may not be able to reach the assets.
    		•


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