Retirement Account Rollovers

Transcription

1 A guide to: Retirement Account Rollovers Making wise decisions for your future Insight + Process = Results SM

2 Retiring? Changing jobs? In transition? If any of these situations apply to you and you participate in an employer-sponsored retirement plan, you will need to make some important decisions about the future of your assets. Or, if you just want to simplify your life, establishing a Rollover IRA can help you consolidate your assets and manage them more effectively. There are a lot of options available and many implications to consider. With the material in this booklet and the insights of your financial advisor, you can make informed decisions.

3 What s your situation? Whether you are retiring, between jobs or changing jobs, it is a good time to evaluate your retirement goals, your progress toward them and options for the future. Having a clear picture of where you are today can help you make informed decisions about where you want to be tomorrow. Know what you have today. Make a list of all of your assets, including any assets you may have with former employers. Your financial advisor can help you create this list and value your net worth. Once you know how much you have, you can determine if you need to adjust your investment pattern to achieve your retirement goals. Know what you need. Evaluate your current budget to determine what level of income you will need going forward. Consider what you spend on food, clothing, transportation, mortgage or rent, entertainment or other expenses. Don t forget about what you will need to spend on healthcare. What will it cost to continue a current employer s plan via COBRA? What will it cost to purchase your own insurance? Consolidate this information to establish a reasonable monthly budget. Decide if your assets are working for you. You may have investments in many different accounts (e.g., with former employers) with different investment strategies. Work with your advisor to help get a better perspective of your assets. Consolidating multiple plans can provide greater control and allow you to identify a unified strategy for managing them. Evaluate your financial position. Switching to a new job or moving into retirement may change your expenses, taxes and income needs. You and your advisor can evaluate your new situation and what these changes might mean for your ability to save or to spend in retirement. Check your beneficiary information. Whenever you make a change, be sure that your beneficiary information is up to date. This will ensure that if anything happens to you, your money will go where you intended. 1

4 What about taxes? Many employer-sponsored retirement plans provide tax advantages for long-term savings. Contributions can be made before taxes are paid and assets grow tax deferred. However, the rules governing the withdrawal of assets from a tax-advantaged plan are strict. Unless you roll over assets into another tax-qualified plan, you can incur costly penalties. In addition, you will owe taxes on any money received from a retirement plan before age 59 ½. Another issue to consider is that your income level and tax bracket may be vastly different when you change jobs or retire. Moving your assets directly into a rollover account can continue to defer taxes and avoid penalties. Tax laws are complicated. Consult with your financial advisor and tax advisor about the regulations that apply to your individual situation before making critical decisions. 2

5 What are my options? You have four major options to consider when deciding what to do with a retirement plan distribution. There are advantages and disadvantages to each one. Advantages Disadvantages 1. Directly transfer the money into a Rollover IRA No taxes or penalties Assets maintain tax-deferred status Can make additional contributions Many investment choices Greater control over assets Opportunity to consolidate multiple retirement accounts Loans are not allowed 2. Leave the money in your current plan (if allowed by the plan) No taxes or penalties Assets maintain tax-deferred status Plan may allow loans Cannot make additional contributions Limited investment choices Less control over assets Subject to policies of the former employer s plan May require minimum balances 3. Move the money into a new employer s plan No taxes or penalties Assets maintain tax-deferred status Plan may allow loans May require a waiting period Limited investment choices Less control over assets 4. Take the money in a lump sum distribution Money available to spend or invest 20% automatically withheld for taxes May incur penalties for early withdrawal Additional federal, state or local taxes may be due Assets lose tax-deferred status Assets no longer set aside for retirement The above information provides general advantages and disadvantages of distribution options but it is not exhaustive. Other advantages/ disadvantages may apply. This information is not intended to provide and should not be relied on for accounting, legal or tax advice or investment recommendations. Please contact your financial advisor or tax advisor for additional information. 3

6 Consider the benefits A Rollover IRA offers a number of benefits that you can take advantage of to more effectively manage your assets and plan for retirement. Consolidation. Retirement account balances took a big hit with the financial crisis of 2008 and may still be recovering. It is important now more than ever to take a big picture view of your assets. Consolidating assets into a single Rollover IRA can assist your financial advisor in providing a holistic approach to managing your retirement savings going forward. More investment choices. Moving assets away from an employer plan will provide you with a much wider set of investment choices. Recent market events have provided even greater clarity for the need to diversify among asset classes, styles, approaches and managers. Greater control. Rolling assets from an employee plan to a Rollover IRA will allow both you and your advisor to have greater control of your assets. You also may be able to continue making tax-deferred contributions to a Rollover IRA. Tax considerations. Rollover IRAs allow you to maintain the tax-deferred status of your assets. You also may want to explore the benefits of hedging against potential future tax increases by considering a Rollover Roth IRA. Your financial advisor can provide you with more information about any of these benefits and help you plan for the future. 4

7 Should you consider a Roth IRA? Another option to consider is to make a direct rollover to a Roth IRA. A Roth IRA is similar to a traditional IRA, but contributions are not tax deductible and qualified distributions* are tax free. Unlike a traditional IRA, minimum withdrawals are not mandatory at any age. Because of these differences, conversion to a Roth IRA may be an attractive choice depending on your situation. To decide if a Roth IRA conversion is right for you, ask yourself these questions. Do I qualify? Anyone can convert to a Roth IRA. It doesn t matter what your age, income or tax filing status is. Income limits apply to any additional contributions made after a conversion. If you earn too much to contribute, you could open a traditional IRA and then convert to a Roth. Should I pay taxes today or later? You should consider two issues before deciding. If you think your tax rate will be the same or higher when you anticipate withdrawing assets, it may be wise to pay taxes today in exchange for potential tax-free distributions in the future. If you can afford to pay the tax liability with non-ira assets, the entire amount of your rollover can grow tax free in the Roth IRA. If you use IRA assets from the conversion, they may be subject to an early withdrawal penalty. When do I anticipate withdrawing the assets? Look at your investment time horizon. The longer you can hold assets in a Roth IRA, the better off you might be. There is no mandatory minimum withdrawal with a Roth IRA. So, if you think you will want to hold money past age 70 ½ or would like to pass the assets on to beneficiaries, a Roth IRA may be a good choice. It also offers flexibility for earlier withdrawals and may be a potential hedge against future tax increases. As long as you ve held money in a Roth IRA for five years, withdrawals are tax free and penalty free if you are at least age 59 ½. As always, it is best to consult with your financial advisor and tax advisor about your current situation before deciding if converting assets to a Roth IRA is the right choice for you. *Qualified distributions of contributions and earnings can be taken as long as the account is at least five years old and the account holder is at least 59 ½ years old. 5

8 What about employer stock? Your retirement portfolio may include shares of your former company s stock, either because it was an investment option within the plan or shares were used in matching contributions. You will need to decide whether it is more beneficial to move them into an IRA or into a taxable account. The answer to that is complicated and depends upon your unique situation and the stock s cost basis and unrealized appreciation. The cost basis is the original price of the stock. The unrealized appreciation is the difference between the cost basis and the current price of the stock. In general, you will encounter one of two situations. High appreciation, low cost basis. The stock value has increased significantly from the original purchase price. The difference is your long-term capital gain, which is taxed at a lower tax rate than ordinary income depending on your tax bracket. Consider moving the employer stock portion of your distribution into a taxable account. Low appreciation, high cost basis. The stock value has not increased significantly from the original purchase price. Consider including the stock in your Rollover IRA so that it may continue growing tax deferred. Any gains will be taxed as ordinary income upon withdrawal. Consult with your financial advisor and tax advisor to determine what tax regulations apply to your situation and what course of action might be most beneficial. 6

9 Managing a successful investment plan Once you ve decided what accounts are appropriate for your retirement plan rollover, it is a good time to evaluate your overall retirement goals and investment strategy. Develop an asset allocation strategy. The approach you want to take to investing will depend upon your individual situation, age, time to retirement and tolerance for risk. Your financial advisor can help you evaluate a variety of investment strategies to meet your needs from conservative to aggressive. Diversify your investments. Whatever asset allocation you choose, it is important to diversify your investments across multiple asset classes. Typically, asset classes behave differently based on economic conditions. When one asset class is rising in value, another may be declining. Spreading your investments across multiple asset classes may provide better returns with less risk. Monitor and adjust your portfolio over time. Situations change and markets shift, both of which have an impact on your portfolio. Reviewing your asset allocation and rebalancing your portfolio on a regular basis allows you to keep on track with your goals and take advantage of new opportunities. Making decisions about your retirement plan does not happen just once. The key to a successful retirement plan is to regularly revisit your investment strategy and make adjustments as your goals and the economic environment change. 7

10 Simple steps to help you achieve your goals When you are dealing with a change in your situation, it can feel daunting to have to think about your retirement plan. But it doesn t have to be a monumental task, and you can get help. Retirement account rollovers don t have to be complicated. Work with a financial advisor who can help you take a logical approach based on your situation. 3 Develop an accurate picture of your retirement assets 3 Establish retirement goals 3 Explore your options and make informed decisions 3 Construct a well-diversified portfolio that meets your growth and income needs, now and into retirement With careful planning, you may realize your goals for a comfortable retirement. One key step is making wise choices about retirement rollovers today. Let the insights and resources of J.P. Morgan Asset Management and your financial advisor help you make those choices. 8

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12 Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss. Contact JPMorgan Distribution Services at for a fund prospectus. You can also visit us at Investors should carefully consider the investment objectives and risks as well as charges and expenses of the mutual fund before investing. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. This piece is for information only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The information in this piece is not intended to provide and should not be relied on for accounting, legal or tax advice or investment recommendations. The views and strategies described in this piece may not be suitable for all readers. J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc., is a member of FINRA/SIPC. J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. JPMorgan Chase & Co., March BRO-ROLL-CL Insight + Process = Results SM