If your employment situation changes, you may wonder what to do with your retirement savings at your previous employer. In fact, you have a variety of options when it comes to taking distributions from your employer-sponsored retirement savings plan. This may be a great time to make an appointment with an Arvest Wealth Management Client Advisor to explore your options.
Option One: Leave the money in the plan.
- Your account could benefit from continued tax-deferred growth, or potentially tax-free growth for Roth accounts.
- While IRAs can provide more investment options than an employer plan, your plan may offer certain investment opportunities an IRA can’t replicate.
- Qualified plans generally provide greater creditor protection than IRAs.
Option Two: Roll your retirement funds over to an IRA.
You can only roll over distributions from Roth accounts to a Roth IRA.
- Your account can potentially benefit from continued tax-deferred or tax-free growth.
- There generally are more investment options with an IRA than with an employer plan.
- You can freely move your money among the various investments offered by your IRA trustee, and you can freely move your IRA dollars among different IRA trustees/custodians using direct transfers.
- You typically choose the timing and amount of distributions in an IRA. It is important to understand you must start taking required minimum distributions (RMDs) from traditional IRAs after reaching age 73.
- During your lifetime, you do not have to make any required distributions from Roth IRAs.
Option Three: Roll the retirement funds over to your new employer’s plan, if the plan accepts rollovers.
- This move offers the same advantages as choosing to leave your money in the plan.
- You can consolidate your employer plan retirement savings.
- You may be eligible for a plan loan, and you may be able to delay required distributions beyond age 73.
Option Four: Choose no rollover and, instead, take the lump-sum distribution of your retirement funds in cash and securities, if applicable.
- All or part of your distribution may be subject to federal and/or state taxes. The taxable portion may be subject to an additional 10% early distribution penalty tax if you haven’t reached age 55 or 50 for qualified public safety employees.
- You may lose the benefit of continued tax-deferred or tax-free growth.
A professional can help ensure you are factoring in all items that could impact your retirement funds, depending on the option you choose. For example, if you are considering rolling over your funds, you should ask about the following:
- Possible surrender charges your existing employer plan may impose, or new surrender charges your IRA or new plan may impose.
- Any investment fees and expenses your new IRA or investment fund may charge, compared to those charged by your existing employer plan.
- Any accumulated rights or guarantees you may give up by transferring funds out of your employer plan.
You also don’t have to roll over your entire plan distribution. If you choose to roll over part of a distribution, but it includes taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution.
It can be challenging to know if you are making the right decisions when adjusting your retirement savings plan. Working with a financial professional can give you increased peace of mind and help to ensure you are considering the best options for your unique circumstances.
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Arvest Wealth Management does not provide tax or legal advice. Be sure to consult your own tax and legal advisors before taking any action that would have tax consequences.