Retirement account distribution options to consider
If you are considering early retirement you are required to make the right retirement distribution decision. Your decision will be based on your individual circumstances, but by all means, your goal is to preserve the retirement funds you have accumulated all your working years to ensure an income stream for the future.
There are several options to consider based on whether you choose to: (1) take your distribution in cash, (2) move your distribution to a rollover IRA or (3) remain in your former employer’s plan to defer taxes.
In particular:
(1) Taking your distribution in cash
Choosing to collect your distribution in cash is subject to stiff taxation and penalties. Choosing such a distribution triggers by default a federal income tax withholding of 20% on the amount that is eligible for rollover. This means that you are automatically losing 1/5 of your retirement assets to federal taxation before state and local taxes are included. Besides, an additional 10 percent federal tax will be withheld as a premature withdrawal penalty if you collect your distribution prior to 59½ years old, if you are not disabled or leaving your job after the age of 55, unless you qualify for exception to these rules. Finally, you may be also subject to state taxes.
Generally, collecting your distribution now is a choice that you need to consider very thoroughly. Taxation and penalties may eat your retirement savings. However, what you are looking for is to maximize the return on your retirement assets and protect them from taxes and penalties.
(2) Moving your distribution to a Rollover IRA
Moving your distribution to a Rollover IRA offers significant protection from taxes and penalties and provides considerable benefits. These are:
- No current taxes on rollover amount.
- A wide variety of investment choices including stocks, mutual funds, bonds, CDs and U.S. Treasuries.
- Flexibility in withdrawal and check-writing services: a Rollover IRA allows you to establish an automatic withdrawal schedule write checks on your funds. Distributions are normally subject to taxations and an additional 10% premature withdrawal penalty if you collect your distribution prior to 59½ years old, unless you qualify for exception.
- Consolidation of multiple distributions: if you have participated in multiple employer-sponsored retirement plans, a Rollover IRA may offer you the opportunity to merge your accounts, simplifying retirement investing and income planning.
- Retirement assets grow tax-deferred.
(3) Remaining in your former employer’s plan to defer taxes.
By remaining invested in your employer-sponsored plan you avoid taxes and penalties and you are offered significant advantages. On the other hand, you have limited control over your investment options and more restrictions on accessing your money.
Here are some important considerations if you choose this retirement account distribution option:
- Often, retirement assets are subject to IRS and retirement plan restrictions on when you can withdraw funds form the plan. In addition, they may not offer flexibility in withdrawal services or check-writing available through other alternatives.
- If you are considering a wide variety of investment choices, including CDs and U.S. Treasuries or diverse growth investment vehicles such are growth mutual funds, you should make sure that they are offered from your employer-sponsored plan. If not, you need to consider an alternative option rather than remain invested in the plan. Also, if you choose to remain in the plan, you need to make sure that you will able to keep the same investment options if you decide to leave it. Some employer-sponsored plans may offer unique investment options such as investment contract options.
- You need to make sure that you comply with IRS minimum required distribution (MRD) regulations. By April 1 of the year following the year you reach age 70½, you are required by the IRS to begin taking distribution from your retirement plan. You may calculate the IRS minimum required distribution with your employer’s help to make sure you select the most advantageous method for your current circumstances and set up an automatic withdrawal.
- Often, employers encourage participation of retirees in employer-sponsored plan through regular meetings and special workshops. If you choose to remain invest in the plan, you maintain contact with your former employer. Besides, any assets qualified under the employer-sponsored plan are protected from the claims of creditors.
- Check you retirement plan provisions to make sure you are no charged any additional fees. There are retirement plans that charge a fee to participants who are no longer actively employed for services they had previously received.
Overall, making the right retirement distribution decision requires careful consideration of your options. You need to understand your individual needs, set your personal objectives and implement the most suitable strategy that will allow you to protect your retirement assets, offering you security for the years to come.
Christina Pomoni has acquired her MBA Finance from the American College of Greece. Her advanced familiarity with financial statement analysis, capital budgeting and market research has been acquired through her professional career at high-esteemed organizations. As part of her long journey, Christina has served as an Equity Research Associate at Telesis Securities (EFG Eurobank) and a Financial & Investment Advisor at ING Group. Besides, having lived at Chicago, IL, Boca Raton, FL and Paris, France has helped her, not only to be a successful professional, but mostly to see life under a more creative and innovative perspective. Since 2005, Christina provides high quality writing services to numerous websites and research companies contributing her knowledge and expertise. Her areas of specialization are Business, Finance & Investment, Society, Politics & Culture. She also has a very good knowledge of Entertainment, Health & Fitness and Computers & Technology. Christina currently designs the website of her own writing company. Believing that knowledge is the road to opportunity and development, her mission is to promote her already established knowledge to a growing number of visitors and to provide high quality writing services to meet the most demanding customer requirements. Article Source:http://www.articlesbase.com/personal-finance-articles/retirement-account-distribution-options-to-consider-1658350.html
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