Strategize and Spend Wisely

Do you have a strategy for living off your retirement funds in your employer-sponsored plan?  No one way is best for everyone, so talk to your financial  or tax advisor before you make any major investment decisions.

The following chart provides some of your potential options:

Retirement Plan Payout Options
Option Tax Impact Other Considerations
Roll Money into an IRA
  • Money continues to grow tax-deferred
  • Federal/state taxes postponed until withdrawal
  • 10% early withdrawal penalty avoided
  •  20% mandatory federal income tax withholding avoided
  • Possible expanded investment options
  • Distributions subject to current income taxes and 10% penalty if taken before age 59 1/2
  • Not eligible for 10-year forward averaging on taxes
Leave Money in Plan
  • Money continues to grow tax-deferred
  • Federal/state taxes postponed until withdrawal
  • 10% early withdrawal penalty avoided
  • Investment options may be more limited than if you roll over to an IRA
  • Distributions subject to current income taxes and 10% penalty if taken before age 59 1/2 (unless age 55 upon a qualified separation from employment)
  • May be eligible for 10-year forward averaging on taxes if born prior to 1936
Cash Withdrawal
  • Lose benefit of tax-deferred growth
  • Subject to federal and state income taxes, but may be eligible for 10-year forward averaging on taxes if born prior to 1936
  • Entire distribution subject to 20% mandatory federal income tax withholding
  • 10% early withdrawal penalty if under age 59 1/2 (unless age 55 upon a qualified separation from employment)
  • Forfeited tax-deferred earnings may be difficult to replace

This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.

WEBC 10.25.06/11    11.30.06

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