Investment Strategist April 2014

Investment Strategist

Nearing Retirement. Changing Jobs. Consider a Rollover.

If you’re getting ready to retire or are simply

considering a job change, you may be wondering

what you should do with the money you’ve saved

in your employer-sponsored retirement plan. When

the time comes to make a job transition, you’ll have

several options. Each has its own pros and cons.

Cash out.

This option may sound tempting, but

it comes with a high degree of risk. While cashing

out gives you immediate access to your money, you

will not only forgo any potential tax-deferred growth

your assets could have generated, you could also

be faced with a hefty tax bill. If you cash out prior

to reaching age 59 ½, your distribution will be subject to both ordinary income taxes and a 10 percent early

withdrawal penalty (some exceptions to the 10 percent penalty may apply, most notably if you are age 55

or older at the time of termination of employment). In addition, your former employer is required to withhold

20 percent of the distribution for federal taxes, further reducing the amount you stand to receive. The 20

percent withholding (but not the 10 percent penalty) will be counted against your income tax due or toward

any refund when you file your tax return. Therefore, you may want to consider other sources before tapping

into your retirement savings, a move that could potentially sabotage your long-term plans.

Leave your money in the existing plan.

If your retirement plan balance exceeds $5,000, the plan

provider is required to allow you to keep your money in the plan after you’ve left the company. This is a

simple option, as it requires no action on your part and avoids the tax and penalties associated with taking

a payout. And due to economies of scale, your previous employer’s plan may offer such benefits as low fees

and discounts on investment-related expenses. Despite this option’s simplicity, however, its disadvantages

may outweigh its advantages.

First of all, you won’t be able to contribute any additional dollars to your old plan, and you’ll also be

limited to only the investment options available through the plan. Your former employer may make

changes to its plan that could adversely affect your account, and if the company suddenly goes out of

business or merges with a competitor, although your assets will be protected, things could become even

more complicated. Some plans even assess an annual fee to terminated participants.

Finally, it can be easy to forget about the money you’ve left in your previous employer’s retirement plan,

especially if you decide to participate in your next employer’s plan. If you’re a frequent job changer, you

could wind up with money in several different employer-sponsored plans. Under such a scenario, you

would be responsible for furnishing each plan provider with address changes and beneficiary updates

as they occur. And if your assets are spread out among several different plans, they may be invested in

vehicles that overlap with each other or contradict your overall investment strategy. By having all of your

retirement savings consolidated in one place, it is easier to ensure that all of your investments are properly

aligned with your goals.

April 2014

SNINS0314

pg_0002

Rollover to your new employer’s plan.

your new employer offers a retirement plan that

accepts rollovers, moving your money there also

protects you from the tax and penalties associated

with taking a payout. The ability to continue

making contributions also makes this option more

appealing than leaving your money in your previous

employer’s plan. However, this option is only as

attractive as your new employer’s plan. Does it offer

things such as full brokerage services, the ability to

take loans, competitive fees, and varied investment

options that fit your objectives. It is important to

thoroughly evaluate the options in your new employer’s plan and decide whether or not they are sufficient

to help you pursue your retirement goals and are consistent with your personal investing philosophy.

Roll your money into an IRA.

You may find a rollover into an IRA to be an attractive alternative,

as it may offer significantly more flexibility than the other options.

First of all, with an IRA, you can choose from a wide variety of investments, rather than simply the

limited number of core investment options employer-sponsored plans typically offer. And if your

retirement plan holdings are heavily weighted with shares of employer stock, an IRA rollover provides

an excellent opportunity for diversification. However, a distribution from the plan of highly appreciated

employer stock offers special tax advantages which are not available if the stock is rolled to an IRA.

The rollover may be combined with other retirement dollars as well. For example, if you have worked

at multiple jobs and have several retirement plan accounts, you can use a rollover to consolidate them

into a single IRA account. Doing so will allow you to streamline your paperwork with a single statement,

make it easier to maintain your desired investment strategy and calculate required minimum distributions,

and possibly even reduce the amount of fees you pay.

And once you’ve established a rollover IRA, you can continue making contributions to it in the future.

The 2014 contribution limit for IRAs is $5,500; $6,500 for individuals age 50 or older. And of course, an

IRA rollover shields you from the taxes and penalties associated with a direct payout. With a rollover IRA,

you don’t pay taxes until you begin withdrawing money.

Once you’ve completed the rollover to the IRA account, it’s important to familiarize yourself with

its characteristics. With a traditional IRA, there is no earned income ceiling for eligibility to contribute.

Any future contributions may be tax deductible, depending on whether you’re an active participant in

an employer-sponsored retirement plan; if you decide to enroll in your new employer’s plan, doing so

may affect your ability to deduct future IRA contributions. IRAs are typically assessed an annual

custodial fee. Stifel IRAs are subject to a $40 per year custodial fee; $30 if multiple accounts are held

in a household.

Both employer-sponsored retirement plans and IRAs allow penalty-free withdrawals after age 59 ½.

With employer-sponsored plans, however, that age drops to 55 for individuals separated from service

with the sponsoring employer during the year in which or after reaching age 55. So, if you’re between

the ages of 55 and 59 ½, you may wish to keep your money in your employer-sponsored plan in order

to avoid having to pay a 10 percent premature distribution penalty.

If you plan on working into your 70s, you’ll want to carefully consider your options. Once you reach

age 70 ½, you must begin taking required minimum distributions from your IRA, regardless of whether

pg_0003

you’re still working or have retired. You also will no

longer be allowed to make additional contributions

to your account. With an employer-sponsored plan,

however, you typically will not be required to take

minimum distributions until retirement if you’re still

working at age 70 ½, and you can continue to make

contributions.

If you qualify, you may find that a Roth IRA is

better for your personal situation. With the Roth

IRA, contributions to the plan are not deductible,

but distributions can be withdrawn tax-free under

certain conditions. Roth IRAs also do not have

required minimum distributions while the account owner is alive. Should you decide to convert from

a plan or IRA to a Roth IRA, ordinary income tax is due on the amount converted in the year of conversion.

For some, especially younger investors, paying the tax up front can result in significant tax savings later.

Avoid Tax Withholding in a Rollover

The key to avoiding the 20 percent withholding tax is arranging a direct rollover, also known as a

“trustee-to-trustee" transfer. In order to perform a direct rollover, the distribution check from your previous

employer’s retirement plan must not be made payable to you, but to the custodian of the IRA account or

employer-sponsored retirement plan to which you wish to transfer the funds. If you wish to roll into a Stifel

IRA, your Financial Advisor can provide you with specific instructions for the check.

To initiate a rollover, you must contact your former employer’s retirement plan administrator to obtain

the forms needed to elect a direct rollover and give instructions on how the distribution check should

be made out and to whom it should be sent. If you receive a check made payable to you, as opposed

to the custodian of the IRA or your new employer’s retirement plan, you will then have 60 days to

deposit it in your rollover IRA or new employer’s plan. In order to roll over 100 percent of your money,

you’ll have to make up the 20 percent withheld for taxes with money out of your own pocket. You

would then treat the 20 percent previously withheld as a tax credit toward your current year’s tax return.

The Next Step

If you’re in the process of changing jobs or retiring, your Stifel Financial Advisor can help you understand

your rollover options in greater detail and provide information so you can select the one that makes the

most sense for your particular circumstances.

Decisions to roll over or transfer retirement plan or IRA assets should be made with careful consideration of the advantages

and disadvantages, including investment options and ser vices, fees and expenses, withdrawal options, required minimum

distributions, tax treatment, and your unique financial needs and retirement planning. Stifel does not offer tax advice. You

should consult with your tax advisor regarding your particular situation as it pertains to tax matters.

pg_0004