Exploring IRA Rollovers CHOOSING THE RIGHT OPTION FOR YOU

Transcription

1 Independent Perspective Real-World Solutions Exploring IRA Rollovers CHOOSING THE RIGHT OPTION FOR YOU The content presented is for informational purposes only.

2 How To Choose The Savings Option That Is Right For You Upon retirement, a shift in your job or career, or if you may have money in your past employer s retirement plan, you are faced with the critical decision of what to do with the money that you have saved. It is important to fully understand your options, as well as the advantages, disadvantages, and tax consequences of each. 2

3 Did You Know? On average, the U.S. employee changes jobs 11 times before retiring. That means, employees will have to make the decision of what to do with their 401(k) savings each time they make that change. With this in mind, knowing your IRA and savings options is essential to ensure that you are making the best choice for yourself and for your money. 3

4 What Are Your Options? Direct Rollover to a Traditional IRA An IRA account can be set up to accept the distribution from your employersponsored retirement plan. The funds are transferred directly into the IRA. This option maintains the tax-deffered status of your retirements savings amount. Cash Distribution You can receive your retirement savings amount in a cash lump-sum this would be in the form of a check made payable directly to you. In this scenario, you have to pay income taxes, payable for the year that you take your distribution. Your employer is required to withhold 20% of your savings, and send it to the IRS as a prepayment of the federal tax that you owe. Leave The Money In Your Former Employer s Plan You may leave your savings in your former employer s retirement plan if you meet the plan-specific required amount to do so (e.g., $5,000). If you have less, your former employer may choose to roll your savings over into an IRA that they set up in your name. Roll Over Your Savings To Your New Employer s Retirement Plan If you fall into the changing jobs scenario, you may be able to roll your savings into your new employer s retirement plan. Discuss this with your new employer to find out what options you may have. 4

5 Permitted Retirement Account Rollovers* What Types of Accounts Can You Rollover Into An IRA? Permitted Rollovers? Traditional IRA Roth IRA 401(k) Yes Yes b 403(b) Yes Yes b 457(b) Yes Yes b Rollover From Traditional IRA Yes Yes b Roth IRA No Yes SEP IRA Yes Yes b SIMPLE Yes a Yes a,b Roth 401(k), 403(b), or 457(b) No Yes *Rollovers into employer-sponsored retirement plans may be subject to further limits and restrictions imposed by the plan document. a Rollovers from SIMPLE plans are permitted only after two years of plan participation. b Rollovers into Roth IRAs and Roth Designated Accounts are permitted only if the converted assets are included as income during the current year. 5

6 Digging Deeper Into Distribution & IRA Rollover Options Option Direct Rollover to Traditional IRA Advantages You will not lose the contributions that you have made, your employer s contributions, or any other earnings you have accumulated in your 401(k) Maintain tax-deferred status Your money is moved directly into an IRA, either electronically or by check, which makes for an easy transaction Direct Rollover to Roth IRA Same as those associated with a Direct Rollover to a Traditional IRA, plus you can withdrawal your earnings tax-free once the account has been open for fi ve years and you are 59 1/2 years old Not subject to minimum withdrawal requirements at the age of 70 1/2 Earnings will be tax-deferred Indirect Rollover to IRA Tax-deferred as long as you rollover assets in full within 60 days The rollover is handled yourself by withdrawing the money and depositing it directly into an IRA Cash Distribution Very simple and easy transaction; you will receive a check from your plan administrator Once you receive the lump-sum of money, you can do what you please with it Leave the Money in Your Former Employer s Plan You will not lose the contributions that you have made, your employer s contributions, or any other earnings you have accumulated in your 401(k) Maintain tax-deferred status If your former employer has the investment options you would like to maintain, your assets can remain in those options May provide access to investment options that are not available to individual investors, and the options may have a lower fee than what could be accessed outside of a plan Roll Over the Distribution to Your New Employer s Plan You will not lose the contributions that you have made, your employer s contributions, or any other earnings you have accumulated in your 401(k) Maintain tax-deferred status Easier to track your assets performance 6

7 Disadvantages After April 1st of the year following the year you turn 70 1/2, you are required to take minimum withdrawals and are taxed at the same rate as your income You will have to pay taxes on the rollover amount that you convert In the fi ve years following the rollover, you are subject to 10% IRS early withdrawal penalty for any withdrawals you may make You will face early withdrawal penalties unless you repay the loan within 60 days The IRS requires employer to withhold 20% of your account balance in case you decide to keep the cash (but the withholding will be returned to you when you fi le your tax return for the year, and if you complete a full rollover within the time limit) Employer will withhold 20% of your account balance to prepay the tax that you will owe May incur a 10% withdrawal penalty on top of the taxes that you owe With taxes owed and withdrawal penalties, it may equal 50% of your account value Some employers might charge higher fees if you are not an active employee You may not qualify to stay in your old 401(k) account if the balance is less than specifi ed amount You will be limited to the investment options offered by their menu, whereas you have more options with an IRA You cannot move your money again until you switch jobs Depending on timing of your job change, you may have to wait for next enrollment period, or in some cases you may have to wait until you have been an employee for a year 7

8 About Manning & Napier Since 1970, Manning & Napier has delivered solutions that help investors meet their fi nancial goals. We offer a broad range of investment management and benefi ts products and services to individuals, institutions, and partners. Our truly active, independent, and opportunistic style allows us to manage risk in line with goals across a variety of market environments. To learn more, contact visit us at IRA rollovers is just one piece of what may impact retirees. To learn more about all items that may have an impact on retirement, visit to download our guidebook. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC and MN, is a member of FINRA. Approved FUNDSMA-OV-G001 (8/15) 8