UNDERSTANDING YOUR RETIREMENT CHOICIES

Transcription

1 UNDERSTANDING YOUR RETIREMENT CHOICIES

2 If you re thinking about retiring or changing jobs: You may be receiving the largest check you ll ever see, and You have a major decision to make. Leave retirement assets with employer (if allowed) Take them in a lump sum and pay taxes Take them in a check and roll it into an IRA or another eligible income tax deferred retirement plan within 60 days. Directly transfer your retirement money into an IRA or another eligible income tax deferred employer-sponsored plan. Directly transfer them into an IRA or another eligible income tax deferred employer-sponsored plan and take the remainder in cash.

3 Are you satisfied with the plan s investment options, past performance and services? Do you need more time to review other options? ADVANTAGES No decision has to be made currently Possible minimum balance requirement No taxes have to be currently paid Investment choices are limited to what plan offers Same investment options you had while working Lack of flexibility in naming beneficiaries Retirement plan maintains its account history Familiarity with account service providers Do you need the money for current expenses? Do you want to invest money for purposes other than retirement? Are you in a better position to pay the taxes now rather than later? What Happens To A $100,000 Distribution? AT DISTRIBUTION: ON APRIL 15 TH : $100,000 cash $80,000 distribution - 20,000 federal income tax withholding -13,000 additional tax* $80,000 received $67,000 subtotal -$10,000 penalty (pre-age 59 ½ withdrawal) $57,000 net distribution *Assumes 33% Combined Tax Bracket Federal/State, doesn t include any City/Local taxes due. Cash distributions from qualified plans taxable in the year that money is withdrawn Employer must withhold 20% in advance of federal income tax due 10% federal tax penalty generally applies for distributions made to owners under age 59 ½

4 ADVANTAGES You may be in a better position to pay taxes now Mandatory 20% federal income tax withholding Distributed money available for current needs May be subject to 10% federal tax penalty You can reinvest money any way you like You may be in a better position to pay taxes later May be advantageous if you have stock in the employer plan Any future earnings may be taxable Loss of income tax deferral Reduced growth and income potential Are you planning to reinvest only a portion of your eligible rollover distribution? Do you need more time to consider your options? Do you need short-term temporary access to your retirement assets? What Happens To A $200,000 Distribution? $40,000 withholding -13,200 in taxes* $26,800 remaining - 4,000 penalty $22,800 remaining $160,000 to an IRA Net distribution: $182,800 Amount lost to taxes: $17,200 * Assumes 33% Combined Tax Bracket Federal/State, doesn t include any City/Local taxes due After receiving your lump sum distribution, you must be careful how you complete the rollover If you choose this option be aware that the plan administrator is required to withhold 20% for federal income tax purposes Therefore, if you do not replace the 20% withheld with out-of-pocket money, the 20% will be included in your income and subject to income tax (and, potentially, the 10% federal tax penalty) * If you are under age 59 ½ and if you do not replace this 20%l it may be subject to the 10% federal premature distribution tax penalty.

5 ADVANTAGES Maintain income tax deferral on amount rolled over Mandatory 20% withholding 60 days to decide where to reinvest Amount withheld may become a taxable distribution Partial Rollovers allowed-can withdraw some money if needed Possible 10% federal tax penalty on amounts not rolled over Planning flexibility 60 day deadline Forego any special ten-year tax averaging if rolled into an IRA Do you need the money immediately? Do you want to avoid current income taxes and federal tax penalty? Are you looking for a way to consolidate your retirement assets? What is The Situation? NO 20% withholding NO current income tax NO 10% federal tax penalty for premature distribution $250,000 distribution plus continued income tax deferral on any growth ADVANTAGES Avoid mandatory 20% withholding Loans are not available from an IRA No current income taxes or federal tax penalty and maintains income tax deferral Forego any special 10-year averaging long-term capital gain treatment if rolled into an IRA* Partial direct rollovers allowed Wide range of investment choices if rolling over to an IRA Possible loan capability or life insurance if rollover plan allows (not IRA) Potential limited investment choices IF deposited into a new employer s plan Potential withdrawal restrictions under terms of the qualified plan (not applicable to IRA s) Estate planning options with Stretch IRA *If you were born before January 1, 1939 and you qualify, you may be eligible for special 10 year forward averaging long-term capital gain tax treatment for distributions from an employer plan. They are not available for distribution from an IRA. Please consult your tax advisor for details.

6 You Can Avoid Current Income Taxes, Penalty Taxes and Mandatory Withholding By Directly rolling over your qualified retirement plan money into an IRA or another employer s eligible income tax deferred retirement plan -Such direct rollover will allow you to keep your qualified retirement money on its tax-deferred course, since no income taxes are due unless you withdraw your money without doing a tax deferred rollover. If You re Considering Using Lump Sum Distributions To Fund A Roth IRA You must first roll over your employer qualified retirement plan distribution to a traditional IRA and then convert the traditional IRA to a Roth IRA (and pay applicable income taxes) Beginning in 2008, you will be able to roll assets directly to a Roth IRA (and pay applicable income tax) Income limits apply in determining eligibility to either roll over or convert to a Roth IRA If You re Considering A Direct Rollover, Know That Some Distributions Cannot Be Rolled Over. For Example Required Minimum Distributions Distributions that are part of a series of Substantially Equal Periodic Payments for a period of 10 years or more or for life or life expectancy Money that represents a hardship distribution Money in a SIMLE IRA during the first two years of participation Do you need some of your money, but want some of your money to continue to grow tax deferred? Do you have employer in your plan and want to take advantage of Net Unrealized Appreciation? ADVANTAGES Flexibility you can take money out if you need it and directly roll over the balance Forego any special 10-year tax averaging long-term capital gain tax treatment if transferred into an IRA* Ability to take advantage of NUA if plan holds employer stock Potentially limited investment choices if rolled over to new employer s plan Any amounts directly rolled over incur no taxes or federal current income tax penalty May be withdrawal restrictions in a new employer s qualified plan Avoid mandatory 20% federal income tax withholding Amounts directly rolled over can maintain current income tax deferral *If you were born before January 1, 1939 and you qualify, you may be eligible for special 10 year forward averaging long-term capital gain tax treatment for distributions from an employer plan. They are not available for distribution from an IRA. Please consult your tax advisor for details.

7 1. Leave the assets with your former employer 2. Take a distribution of the assets 3. Take a distribution but roll to an IRA or another eligible income-tax deferred retirement plan within 60 days 4. Directly roll the assets to an IRA or other eligible income-tax-deferred retirement plan 5. Take some assets and rollover some assets to another eligible income-tax-deferred retirement plan A major financial decision such as what to do with your retirement plan assets generally requires a thorough analysis of available options and their impact your finances. Find the choice that is best for you Find the most effective way to manage your retirement assets Seek help to evaluate your options Information is provided by MetLife.