You ve worked hard for your savings. Now keep your savings working hard for you.

Transcription

1 You ve worked hard for your savings. Now keep your savings working hard for you. Retire with confidence A guide to your distribution options.

2 You are now faced with an important financial decision When you retire or change employment, deciding what to do with your accumulated retirement savings may be one of the most important financial decisions you make. Choosing a distribution method from your retirement plan can have significant tax implications. Below is a quick checklist of what to consider during this transition period: Don t forget your retirement savings: learn about your distribution options Your retirement plan offers you several choices when you change jobs or retire. This guide explains some of the options you may choose and how the money in your plan can be treated when one of these events occurs. Consider tax consequences If you plan to cash out, take into consideration whether favorable tax rules apply to your cash distribution. Reexamine your financial goals View your current life event (job change or retirement) as a good reason to reassess your investment portfolio and financial goals. Develop a retirement income strategy What can you do to preserve your savings and allow your retirement savings to keep growing tax-deferred up to and through retirement? As you move forward in life, this brochure can help you move wisely. T. Rowe Price is here to help For more information, speak with an experienced retirement specialist by calling Or you can log in to rps.troweprice.com and click on the Distributions tab.

3 In times of change, it helps to develop a distribution strategy When switching jobs, nearing retirement, or retiring, it s important to consider your retirement savings. Think of it in terms of having the money you ll need to replace the regular paychecks you ve always relied on. This is known as your retirement income. To maintain a familiar lifestyle in your retirement, financial experts estimate that you ll need to replace approximately 75% of your preretirement income each year. For example, if you re annual salary is $50,000 the day before you retire, you ll need approximately $37,500 from various income sources (e.g., your retirement savings, Social Security, and other income) during the first year of your retirement to maintain your lifestyle. Stay on track when making distribution decisions You face some common choices about how to invest your savings and how to keep your money working for you. You may find that it pays to postpone taking a withdrawal. The table below shows the potential impact taking a withdrawal could have on your savings in this example, a difference of more than $80,000 after 20 years. Consequences of Withdrawing Your Savings Advantages of Staying Invested Tax-Deferred If you take a distribution, you will pay taxes now, and you also risk having less money for retirement if you place your balance in a taxable account. If you keep your account tax-deferred by rolling over your money into a Traditional IRA or keeping it in an eligible plan you avoid paying taxes now and give your money the opportunity to grow tax-deferred. Your total account balance $40,000 $40,000 20% withholding 1 -$8,000 $0 Additional current federal and state tax 1 -$3,500 $0 10% early withdrawal penalty 2 -$4,000 $0 Account balance after taxes and penalty 3 $24,500 $40,000 Potential account value in 20 years 4 $74, $154, Assumes a tax rate of 28.75% (federal and state) in the year of distribution. 2 If you are under age 59V, a 10% penalty may apply. 3 Actual check received will be $32,000. $24,500 reflects the additional taxes and 10% penalty that will be assessed later. 4 Assumes a hypothetical 7% annual rate of return in a taxable account, an 18.75% (federal and state) capital gains tax on earnings, and no early withdrawal penalty at the end of 20 years. This was calculated with annual compounding. This is for illustrative purposes only and is not intended to demonstrate the past performance or future results of any investment. Your results may vary. 5 Assumes a 7% annual rate of return in a tax-deferred account. This was calculated with annual compounding. Taxes are payable when money is withdrawn from the account. This is for illustrative purposes only and is not meant to represent the performance of any specific investment. This chart does not address the effect of rolling over to a Roth IRA. 1

4 Consider your options Depending on your situation, you have the following choices when you leave your employer and have a vested account balance: Stay in the plan Leave your savings in your current plan* Roll over Move your savings into an individual retirement account (IRA) or another eligible employer plan. We re here to help For more information, speak with an experienced retirement specialist by calling Or you can log in to rps.troweprice.com and click on the Distributions tab. Cash out Take your savings now. Considerations and questions to help you with your decision A good way to keep your retirement savings tax-deferred is to stay in your current plan or roll your balance over to an IRA. This table can help you weigh the pros and cons of each option: STAY IN THE PLAN ROLL OVER CASH OUT What to consider Stay tax-deferred Avoid current taxes and penalties Continue to enjoy the same tools, services, and investments you ve come to know Distributions and investments are based on your plan s provisions Could be your easiest option Keep savings tax-deferred Avoid current taxes and penalties (if directly rolled over) Additional investment options available Consolidate retirement savings To an IRA Get flexible IRA withdrawal options Immediate tax consequences** Possible early withdrawal penalties*** Immediate access to savings Can roll over balance within 60 days Account balance, including any outstanding loans, taxed as current income in year of distribution To a new retirement plan Loans may be available What to do No action required. Should your needs change or to discuss your options, call T. Rowe Price at Call T. Rowe Price at Visit rps.troweprice.com and click on the Distributions tab Call T. Rowe Price at *Provided you meet plan requirements **Most distributions subject to 20% withholding ***10% early withdrawal penalty may apply to those under age 59 V 2

5 About rollovers and individual retirement accounts (IRAs) What is a direct rollover? A direct rollover is when your retirement savings are moved directly from your employer s retirement plan to a Traditional IRA, Roth IRA, or another employer-sponsored retirement plan. Here are some considerations: An IRA is separate from your employer-sponsored plan. Fees, investment options, and distribution options are related to the IRA that you choose. A rollover to a Traditional IRA or a new employer plan allows you to continue deferring taxes on your account and avoid current taxes and potential penalties until you take a distribution. A rollover to a Roth IRA requires that you pay taxes now on taxable amounts. If you maintain the Roth account for five years and meet other distribution criteria, all distributions from the Roth account will be tax-free. You may consolidate your IRA and your previous employer retirement plan balance into one account and possibly continue contributing to your IRA. An outstanding loan balance cannot be rolled into an IRA, nor may you take a new loan from an IRA. You may be able to take a loan from your new employer-sponsored plan, depending on the plan rules. Differences between a Traditional IRA and a Roth IRA A Roth IRA is similar to a Traditional IRA, but has some important tax differences. As a result, for some, a Roth IRA may be more advantageous than a Traditional IRA. Traditional IRA Allows contributions that may be tax-deductible, depending on your income level and participation in your employer s retirement plan. Lets you begin taking penalty-free withdrawals at age 59½, generally taxed as ordinary income. There are also other exceptions that allow for penalty-free withdrawals prior to age 59½. Permits contributions up to the year you turn age 70½, as long as you or your spouse has earned income. Minimum distributions must begin at this time. Roth IRA Permits after-tax contributions subject to income limits. Allows for contributions after age 70½, as long as you have earned income within income limits. Lets your after-tax contributions be distributed at any time. Any growth of your after-tax contributions can be distributed tax-free if it is a qualified distribution.* * Roth qualified distributions A qualified distribution is tax-free if taken at least 5 years after the year of your first Roth contribution and you ve reached age 59 V, become totally disabled, or died. If your distribution is not qualified, any withdrawal from your account will be partially taxable. Additional distribution rules apply. Consider a T. Rowe Price Rollover IRA In times of change, sticking with who and what you know can be beneficial. By participating in your employer s retirement plan, you already know T. Rowe Price. Our broad selection of investment options can help you keep your retirement savings growing in a tax-advantaged T. Rowe Price IRA or Roth IRA.* Continue your relationship with T. Rowe Price. Maintain a similar investment lineup or create a new one with access to stocks, bonds, and mutual funds. Get individualized guidance from retirement specialists who can help you through every step of the Rollover IRA process as well as discuss the investment options that may be right for you. Experience world-class service, investment management excellence, knowledgeable service representatives, and easy account access. Call to request a prospectus, which includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. It s easy to initiate a rollover Speak with a retirement specialist by calling Go to rps.troweprice.com and click on the Distributions tab. *Minimum balance to open a T. Rowe Price Rollover IRA is $1,000. Rolling over more than $100,000? Get services based on your personal needs. For more information, call to speak with a specialist who can help you develop an investment strategy based on your time horizon. 3

6 Different strategies for different life stages Depending on which life stage you may be facing, you have different decisions to make about how to handle your retirement account. Here are some tips for each stage of your retirement planning. When changing jobs Stay tax-deferred and keep saving! Keep your retirement account tax-deferred Continue saving for retirement in an IRA or a new employer s plan Consider consolidating your savings into one IRA Consider investing for growth to build up your account When changing jobs and nearing retirement (age 50+) Stay on course! Calculate your income sources and needs at retirement Save more by making additional catch-up or IRA contributions, if needed Develop an investment strategy based on your time horizon Pay down your debts Know your distribution options Think about when to begin taking benefits When you retire Congratulations! Make it last. Establish a withdrawal strategy Revisit your investment allocation regularly Decide what age to start collecting Social Security Begin taking required minimum distributions at age 70½ Set aside a portion of your total savings for emergencies Two rules of thumb for a careful withdrawal strategy When withdrawing from your retirement accounts, think about these two important rules of thumb that can help make your money last throughout retirement: 1. The 4% rule: Withdraw no more than 4% of your savings in your first year of retirement. Financial experts suggest that you withdraw just 4% of your retirement savings during the first year of retirement (depending on your age; see table). Then, increase that dollar amount by 3% during each of the following years to account for inflation. This helps to give your savings a better chance to last throughout a possible 30-year retirement. Age Suggested initial annual withdrawal amount (% of ending balance) % % % % % % 2. Withdrawal order: Which accounts to tap first. The order in which you withdraw your investments and savings can make a big difference in how long your money lasts. In most cases, it makes sense to start with your taxable accounts, then your tax-deferred accounts, and finally your tax-free accounts. And remember, things come up. Plan on putting aside at least three to six months worth of living expenses for unforeseen emergencies. 4

7 Helpful resources from T. Rowe Price We know that making a distribution decision can seem challenging. That s why we ve created a wide variety of resources to answer your questions and help you make confident decisions. Online resources Visit the T. Rowe Price website at rps.troweprice.com for tips, calculators, worksheets, analyzers, and much more. You ll also find free Morningstar tools that can help you choose and track your investments. Click on the Distributions tab to find: Your distribution options detailed information about what you need to consider when taking a distribution. T. Rowe Price retirement specialists Our retirement specialists make every step of your experience easier by: If you chose, they can help you move your plan account balance from your employer s plan to a T. Rowe Price Rollover IRA Provide assistance with your investment choices Answer questions about our many products and services How to start the T. Rowe Price IRA rollover process online select the Establish a T. Rowe Price IRA link and follow the steps to complete. Click on the Tools tab to find: Helpful calculators better inform yourself about retirement planning by using one of the available calculator tools: retirement budget, inflation, Social Security, and more. Let T. Rowe Price help keep your money working for you Remember that retirement investing is a long-term process, and although resources are available, it is up to you to take an active role in your future. If you ever have questions, we can help. By phone: Speak with an experienced retirement specialist by calling during business days from 7 a.m. to 10 p.m. eastern time. Online: Visit rps.troweprice.com and click on the Distributions tab for more information and helpful tools. T. Rowe Price Retirement Plan Services, Inc., its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this brochure is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this brochure. 5

8 T. Rowe Price Investment Services, Inc., distributor, T. Rowe Price mutual funds DMB260-DIST 8/