Rollovers

Changing Jobs or About to Retire??

If you are one of the millions of Americans who change jobs or retire each year and receive a retirement plan distribution from your employer's retirement plan, you must make an important decision about what to do with the money you have accumulated in the plan.

Perhaps the most important decision you need to make is when you will need to access this money. If you don't need to use all of it right away, you have a significant opportunity to continue the wealth-building process begun by your employer. If you do need to access the money right away, you should also know that your withdrawals will be considered income, in the year they are received, for tax purposes. Therefore, you have the ability to plan and control your distribution to your advantage.

If you need your entire distribution immediately, special tax treatment on lump sum distributions may be available and should be considered. These methods can enable you to pay less tax than if the amount were included in ordinary income. In certain circumstances, based on your age, length and timing of plan participation, 5-year or 10-year averaging techniques and capital gains treatment may be available. However, if you are not yet 59½, this special tax treatment is not available. If you are not yet age 59½, there may also be a 10% premature distribution penalty tax, in addition to ordinary income tax, so decide carefully. If you don't need all of the money, an IRA rollover permits you to defer taxes on your retirement plan distribution, allowing your money the potential to grow faster than in a regular taxable savings account. Most taxable distributions from qualified retirement plans can generally be rolled over into an IRA. There are exceptions for payments over life expectancy, installment payments for ten years or more, required distributions after age 70½ and after-tax employee contributions.

If deferring taxes with an IRA rollover is right for you, you should notify your employer to send it directly to your IRA. If the distribution is paid to you instead, generally your employer is required to withhold 20% of the distribution for federal income taxes. If the distribution is sent to you, you can still complete the IRA rollover within 60 days, however you must "make up" the 20% in cash until you file that year's tax return and presumably get a refund of any excess withholding taxes.

Once you roll over your distribution to your IRA, you have flexible distribution options enabling you to control the income stream to meet your lifetime needs and when you pay taxes. If you need to take distributions before age 59½ you may be able to start distributions to meet your needs, while avoiding IRS penalties.

A retirement plan distribution must be treated carefully to ensure your future financial security. Before you do anything, take some time to understand your options. After you have determined when you will need to use the money, review the benefits of each distribution option available. It's important that you know your investment options and your retirement income goals before you decide what to do with your profit sharing, 401(k), or other retirement plan payout.

ENB Associates Inc. is a wholly owned subsidiary of Evans National Bank. Securities are offered by O'Keefe Shaw & Co., Inc. Member NASD, and SIPC. Products purchased through O'Keefe Shaw may lose value, are not deposits with obligations of, or guaranteed by Evans National Bank or affiliates and are not insured by the FDIC.