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3: Analyze Your Decisions

Rollovers

two money plants growing

If you leave your job, you need to focus on your options for taking your retirement savings plan balance with you. You can do this by rolling your retirement plan into an IRA so that you won’t have to pay taxes on the funds. Rolling into an IRA also allows your money to keep growing tax-deferred.

If you are rolling funds over, find out answers to the following questions:

  • What fees are associated with a rollover IRA?
  • Can you leave the account with your former employer? If so, your fees may be lower than those associated with an IRA. You will need to know how to keep your former employer apprised of your address, phone and other contact information so you can receive your retirement payments.
  • What investment options are available in your former employer’s plan versus a new IRA?
  • Can you transfer money in your tax-deferred plan to your new employer’s plan?

If you do choose an IRA when changing jobs, make sure to authorize a “direct rollover” (also called a trustee-to-trustee transfer), so you don’t trigger a taxable event.

Rollovers in divorce situations must be accomplished as a transfer from one account directly to another to avoid the original owner paying taxes on the amount. A qualified domestic relations order (QDRO) is required.

A Special Note on Buyouts

If you are offered a buyout from an employer, it is best not to take a lump sum payment. Taking a lump sum payment will subject you to taxes and penalties (if you are younger than 59½). Be sure you understand the terms of accepting early retirement incentives and lump-sum payouts instead of the annuity.

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