Accounting News and Notes

Your retirement savings plan offers you several choices when you decide to change jobs or when you retire.  A distribution is a payout of realized savings and earnings from a 401(k) or other retirement plan. In general, you must begin taking distributions from your account by April 1 of the year following the year in which you turn 70 1/2.  When you leave a company your distribution options may include:  keeping your money in your plan, enacting a direct rollover, or taking a cash distribution. Each option has different consequences.

If you keep your money in your plan, you will no longer be able to make contributions, but you will still maintain control over the investments and your money will continue to grow tax deferred. You could rollover to your new employer’s qualified retirement account without physically receiving any funds.

Similarly, in a direct rollover, you could move your money directly to an IRA. This option allows for you to benefit from the advise of a financial advisor.  A flurry of new investment products, the emergence of foreign investing, the shift from company-funded pension plans to employee-driven retirement plans and uncertainty about Social Security has all contributed to the increased need for qualified financial advice. No matter what your level of investment experience or sophistication, you may benefit from developing a relationship with a financial advisor.  A qualified financial advisor is trained to analyze your personal financial situation and prepare a program designed to help you meet your financial goals and objectives. It might be helpful to think of your financial advisor as a kind of doctor for your financial health.  If you are under 59 at the time of separation from service, a direct rollover may be a good option, as it avoids the penalties associated with a cash distribution from a qualified plan.

Those tempted to take a cash distribution from a qualified plan should consider the taxes and penalties that apply to this type of distribution. You must pay taxes on the money you receive at then-current rates, and if you are under age 59 at the time of separation from service, you may also have to pay a 10% penalty, making this option viable only if the funds are immediately necessary.

Whatever option you choose you will want to think carefully before making any decisions about the money in your retirement plan, as some choices may mean you have to pay more in income taxes on your distribution.  Speak with a tax advisor before picking a distribution election.                            ___________________________________________________________________

                           Securities offered through Harbor Financial Services, LLC Member NASD/SIPC,  Clearing Raymond James & Associates  Robin Grier Financial Services, Inc is not an affiliate or Subsidiary of   Harbor Financial Services, LLC

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This entry was posted on Monday, July 6th, 2009 at 6:34 pm and is filed under Investing 101 for Metro Atlanta/Gwinnett, Retirement Planning...Planning For Your Financial Future.
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