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Money Matters for Seniors
Managing Your Retirement Fund – Sit, Stay or Roll Over
By Robert Valentine,
Certified Senior Advisor
Feb. 19, 2006 - 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) companies
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 makes you feel most comfortable.
If
you choose to withdraw your money in a lump sum from a previous
employer’s retirement fund, you must pay taxes on the money you
withdraw. On top of those taxes, your employer is required to take a
20% withholding from your lump sum, and if you are under age 59 ½, you
may also be forced to pay a 10% 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% withheld by your employer.
The 20% withholding will be deducted from your reported income when your
taxes are due.
Leaving the money in your current plan is one option when changing jobs
or companies. However, you must also be aware of any possible
regulations and 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 or your new employers plan. However, to avoid
paying taxes and penalties, you should have these assets transferred
directly to another IRA custodian.
This rollover will still have to be reported to the I.R.S. One downside
is that your retirement rollover cannot be rolled into a Roth IRA.
However, you may qualify for a Rollover IRA which can than be rolled
into a Roth IRA, but you must meet certain qualifications. Once a
Rollover has been put into a Roth, you cannot roll the Roth into another
employee-sponsored retirement plan.
There are, however, exceptions to the rules of roll-overs for first-time
homebuyers.
If
you’re emptying out your former retirement fund and wish to use up to
$10,000 towards the purchase of a first home, you’re allowed to do so.
You are taxed on the withdrawal, but you do not have to pay the extra
10% early withdrawal fee. You also have up to 120 days to use the
$10,000 on a first-time home purchase rather than the basic 60 days.
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’ll make. And by being prepared in advance, you’ll know when it
comes time to confront change, you’ll be ready.
Robert Valentine is a Certified Senior Advisor in Huntington Beach, CA.
He can be reached at (877) 732-2637.
About author
This article was submitted by Robert
Valentine of Financial and Retirement Management. Robert (CA Insurance
Lic #0C23496) is a Registered Representative of and offers securities
through Securities America, Inc., a Registered Broker/Dealer, Member
NASD/SIPC. Advisory services offered through Financial and Retirement
Management, a Registered Investment Advisory firm. Robert is a Certified
Senior Advisor in Huntington Beach, CA. Several of his articles on
financial planning matters that concern investors have been published by
SeniorJournal.com. Robert
can be reached at (877) 732-2637.
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