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IRA
Should You Consider a Rollover from Your Former Employer’s Retirement Plan?
By Tony DiSorbo
Owner, DAS Associates
Millions of employees will change jobs this year through career moves, layoffs or retirement. If you are one of these employees, chances are that this change has left you with a lot to think about. And one important decision you need to make is what to do with your retirement savings.
You have several options when considering your retirement savings. The options include leaving the funds in your former employer’s retirement plan (if the plan allows it), transferring it to a new employers’ plan (if the plan allows it), taking a distribution in cash (penalties and taxes may apply), or rolling it to a traditional
IRA.
One of the most widely used retirement distribution options is to rollover your retirement savings into a traditional IRA. Rolling an employer sponsored retirement plan into an IRA can yield a number of benefits for you the investor. The benefits may include increased investment options, consolidation of retirement accounts and the ability to prolong the tax deferral of your retirement nest egg for your beneficiaries.
When considering an IRA rollover it is important to know the IRS rules. Basically there are two options: You can request that the check be made payable to you or have the check made payable to the IRA institution (for the benefit of you.) If you take possession of your retirement distribution and the check is made payable to you, your former employer is required to withhold 20 percent of the distribution as a prepayment of the federal income tax. In addition to the taxes that are withheld, you will have 60 days to roll the money to an IRA to avoid penalties (if under the age of 59 ½.)
The preferred method of rolling funds to an IRA, is to have the IRA institution request the funds directly from the employer sponsored plan. Direct rollovers between firms eliminate the 20 percent withholding requirement.
Your retirement plan distribution may very well be one of the largest amounts you’ve ever invested at one time. What you do with this money can affect how you live during your retirement years. It is best to consult your financial professional before making any decisions about your retirement distributions.
The author is a CLU and ChFC designee, a Registered Investment Advisor and registered representative of Jefferson Pilot Securities Corporation, member NASD, SIPC.
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