MFS Retirement Strategies Rollover IRA READY FOR WHAT S NEXT? Transitioning toward retirement
ASSESS YOUR NEEDS TIME TO TAKE CONTROL Workplace retirement plans such as a 401(k) or a 403(b) have helped you build your retirement assets, tax deferred, over the years. In fact, if you are like many Americans, your retirement plan may be your largest asset. Now you have a decision to make about your retirement plan savings. This guide will help you understand your options, decide how to best transition your wealth and position yourself for retirement. Talk to your financial advisor before you invest. This material is not intended to replace the advice of a qualified professional. Before making any financial commitment regarding the issues discussed here, consult a financial or tax advisor. MFS does not provide legal, tax or accounting advice. Any statement contained in this communication (including any attachments) concerning U.S. tax matters was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. This communication was written to support the promotion or marketing of the transaction(s) or matter(s) addressed. Clients of MFS should obtain their own independent tax and legal advice based on their particular circumstances. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
It does not matter whether you are planning to retire soon or are pursuing a new career opportunity a rollover IRA offers you an easy way to consolidate and control your retirement assets with tax-deferred investing an income stream during retirement easy access to your assets in an emergency 1 a broad range of investment choices Managing your retirement assets is a big responsibility, especially in times of transition. Before you decide what to do, remember why you chose to participate in the first place to cover your financial needs during retirement. If you are retiring, your goal is to provide an adequate income stream. This is especially important when you consider that today s retirees can look forward to much longer retirements. In fact, for a couple retiring at age 65, there is a 88% probability that at least one spouse will live beyond 80 years of age. 2 If you are changing jobs, you will soon find out that managing a number of different retirement plans may not be easy. On average, Americans change jobs 12 times during their careers, 3 so the ability to consolidate assets from a few different plans can be a valuable tool for facilitating control. Flexible strategies Rolling assets into an IRA offers smart, flexible strategies that can help address the long-term concerns of both retirees and workers. 1 Current income taxes and a possible 10% tax penalty often apply when you withdraw your retirement money prior to age 59½. 2 Source: Society of Actuaries, 2015 (based on 2010 tables, the most recent data available) 3 Source: Bureau of Labor Statistics, 2015 (survey includes Americans born between 1957 and 1964) page 1
CONSIDER YOUR OPTIONS ROLL IT OVER What may be the best way to manage your retirement money? The list of reasons for rolling retirement assets into an IRA is long: Tax-deferred investing It may be one of the most compelling reasons for retirement investing in the first place. You will preserve the tax deferred status of your retirement plan assets by rolling them into an IRA and you will not pay taxes on the earnings in your IRA until you withdraw them. An income stream during retirement When you invest in a rollover IRA, you will have flexibility during the distribution phase of retirement, when you take your money out. Unrestricted access Although current income taxes and in some cases a 10% tax penalty apply when you use your retirement money prior to age 59½, you are not restricted from withdrawing from your IRA. You may be able to take penalty-free early distributions from an IRA to help cover the costs of a first-time home purchase, qualified higher education, certain medical or unemployment expenses, death or disability (it may also be possible to take penalty-free withdrawals from other retirement plans such as a 401(k) plan). Restrictions may apply. Consult your tax advisor for further details. A broad range of investment choices A typical 401(k) may offer 10 to 15 choices, while an IRA may offer many more options. More options give you and your financial advisor a better chance to build an asset allocation strategy tailored to your goals, time frame and risk tolerance. When evaluating investments, you also want to consider the expenses of the investment, any fees that the plan or IRA will charge you, as well as the services or advice you receive. Since your employer may pay some of the plan s expenses, you may find the 401(k) is cheaper, or you could find that an IRA is the cheaper option. The key is to do a side by side comparison of the investment options, fees, expenses and services to find the option that best fits your individual needs. Keep in mind that all investments carry a certain amount of risk, including the possible loss of the principal amount invested. Also keep in mind the differences of protection from creditors and legal judgments regarding retirement plans such as 401(k)s vs. IRAs. Plan assets generally have unlimited protection from creditors under federal law, while IRA assets are protected in bankruptcy only. State laws vary in the protection of IRA assets. Also, there may be negative tax consequences of rolling over employer stock to an IRA. Retirement asset consolidation You can roll over different types of assets into a single rollover IRA. Whether it is a 401(k), 403(b) or 457 plan, in most cases the assets can roll into the same IRA. $150,000 Kim is changing jobs. She has been contributing to her workplace retirement plan over the past 10 years and has accumulated $50,000. She has decided to roll her assets into an IRA. $100,000 $50,000 YEARS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 page 2
Assumptions 6% annual return, compounded monthly 33% total tax rate on a lump-sum withdrawal Hypothetical results are for illustrative purposes only and are not meant to represent the future performance of any MFS product. Rates of return will vary over time, particularly for long-term investments. There is no guarantee the selected rate of return can be achieved. Taxes are due upon withdrawal from the tax-deferred account. Withdrawals made prior to age 59½ may be subject to a 10% federal penalty and certain plan restrictions. $200,000 $250,000 Kim plans to retire after 30 years at age 65. $301,129 ($201,756 after taxes) Rolling over your retirement account into an IRA may be a good choice, but it is not your only choice. Here are three other options to consider. Take it? A tempting option that comes with some costly problems. 25% 60% 5% 10% Federal tax State tax Withdrawal penalty Net Taxes. After a 10% withdrawal penalty, 25% federal tax and 5% state tax, for example, a $50,000 withdrawal from a 401(k) would net just $30,000. Loss of tax-deferred growth. All those lessons learned about compounding and potentially growing your money tax deferred over time will be wasted if you withdraw your assets too soon. Rollover benefits now and later Over time, Kim s $50,000 hypothetical investment could grow tax deferred to over $300,000 and provide a benefit of $201,756 after taxes, based on an assumed 33% total tax rate on a lump-sum withdrawal. Actual results will vary based on the withdrawal method, tax rate at withdrawal and actual investment performance. While a rollover IRA is a good choice for many people, you want to consider your situation carefully before taking any action. Qualified plans, such as a 401(k), have some benefits that are not available in an IRA. Leave it? Keeping your money in your old plan may be the easiest option to execute, but the plan may not offer flexible distribution options or investment choices that meet your changing needs. Even if you like your investment choices today, there is no guarantee that they will not change tomorrow. Move it? Your new company may offer an attractive retirement plan, but keep in mind that the rules for each plan are different, including those regarding what assets they will accept, how you can withdraw money and what your investment options are. 20 21 22 23 24 25 26 27 28 29 30 page 3
TAKE ACTION THREE SIMPLE STEPS STEP 1. Talk to your financial advisor today Start your conversation with these simple questions: What may be the most efficient way for me to keep track of my retirement assets? Is it beneficial for me to consolidate all of my retirement accounts? How can I choose the investment options that will work best for me? STEP 2. Take control of your retirement portfolio Your financial advisor will help you look at your current investments and come up with a solid asset allocation strategy so you can take control of your retirement savings. The investments you choose should correspond to your financial needs, goals, and risk tolerance. For assistance in determining your financial situation, consult an investment professional. STEP 3. Open an IRA Your financial advisor can provide you with forms and guidance. See Education & Planning/Asset Allocation Strategies on mfs.com. No investment strategy, including asset allocation, can guarantee a profit or protect against a loss. page 4
EXPERTISE THROUGH COLLABORATION We recognize that investors look for investment managers with the expertise to deliver strong returns over the long term. A consistent, long-term discipline drives the way we think, the way we invest and the way we are rewarded. MFS is an active, global investment manager with a uniquely collaborative approach that brings you our best insights and expertise through: Integrated Research We analyze opportunities across geographies, across fundamental and quantitative disciplines and across an organization s entire capital structure to develop a fuller perspective on securities we select for our clients. Global Collaboration Our people, teams and compensation structure ensure collaboration so that our clients benefit from a shared, worldwide view of investing opportunities. Active Risk Management Every member of our investment team is responsible for managing risk and delivering to our clients the greatest possible return within each portfolio s risk guidelines. linkedin twitter swanson blog insights blog youtube itunes facebook Print MFS Fund Distributors, Inc., Boston, MA IRAE-TRAN-BRO-11/15 12722.12