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Are You Leaving a Part of Your Future Behind?
If you are changing careers, switching employers, retiring or involved in a layoff, there is more than your immediate future at stake. The money you have in a 401K or other retirement plan with a former employer is likely to be a large source of your retirement income. What you do with that savings affects you long after you have adjusted to a new career, job or retirement.
Your decision now may mean the difference between enjoying a comfortable retirement and struggling to make ends meet - as well as affect what you pay in taxes and the financial resources you can leverage to enhance your life. Making the right decision involves taking your needs and objectives into careful consideration.
Stop to Consider Your Needs and Objectives
Do you want to:
• Continue saving for your retirement?
• Avoid unnecessary income and penalty taxes?
• Access these funds in the case of emergencies or as needed?
• Choose from a wide selection of investment options?
If any of these objectives are important to you, knowing what you can do with the savings accumulated in your former employer’s plan is essential. Working with a Financial Consultant from Financial Network Investment Corporation at Founders Federal Credit Union can help you fully weigh the choices available to you.
Weigh Your Options
You generally have four ways to handle your savings in a former employer’s plan to help meet your needs and pursue your objectives:
Option #1: Cash Out
Receiving cash from your former employer’s plan gives you that money now. Unfortunately, you will be subject to federal and state taxes, 20% federal income tax withholding and a potential 10% early distribution penalty. You also lose the benefit of having the potential for tax deferred growth on these savings. In short, you pay a high price for receiving your retirement savings now.
Option #2: Leave Your Retirement Savings in Your Former Employer’s Plan
Leaving your retirement savings behind with your former employer requires no effort on your part. Nor are you liable for paying any taxes or penalties. But this option may not be permitted by the plan or your access to and control of these funds may be curtailed.
Option #3: Roll Your Retirement Savings Directly Into Your New Employer’s Plan
If your new employer offers a qualified retirement plan into which you can roll over your retirement savings, this option allows the potential for tax-deferred growth without incurring taxes or penalties. The flexibility of your new employer’s plan should be considered first, as the plan’s investment choices and terms affect your access to and control of your retirement savings.
Option #4: Move Your Retirement Savings to an Individual Retirement Account (IRA)
The Financial Consultants at Founders can assist you in identifying an IRA that is right for you based upon your needs and objectives. If you have company stock as part of your former employer’s plan, the Financial Consultants at Founders can evaluate whether you should take advantage of the potential tax benefits that may come with distributing the stock.
There are two methods of moving retirement savings:
• Direct rollover
• Indirect rollover
Each method has specific guidelines that must be carefully followed to ensure the movement of your retirement savings is a tax-free transaction. Our Financial Consultants can help with the proper transfer of your retirement savings.
For more information about our Investment Services, please call 1-866-739-7064 to make an appointment.
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