 |
||
|
Stifel Client Account Access: LOG IN ● 1 Consolidate 2 Manage 3 Retire Well ● Contact Us |
||
|
|
||
| ROLLOVER CENTER |
401k Rollover Options Understanding your 401k Rollover Options Achieving a secure retirement is one of the most important goals you can have.This is crucial to keep in mind, especially when changing jobs. If you are receiving 401(k) proceeds or taking a distribution from another qualified retirement plan, you should consider all of your investment alternatives. If you take direct possession of your plan savings, not only must your employer withhold 20% of the distribution towards any possible tax liability, but the entire amount could be subject to taxation at your top marginal rate. In addition, you may also incur a 10% federal penalty tax if you are under age 59 1/2. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) has resulted in significant changes for retirement plan participants and individual retirement account (IRA) investors. The doors are now open to transfer among the different types of retirement plans – commonly referred to as a direct rollover. A direct rollover may be your best choice of available options, especially if you seek to maintain the tax-deferred growth of your investment. However, everyone’s financial situation is unique, and you need to consider your options carefully. It is important that you review what a direct rollover has to offer. It may be the best option to address your financial needs. How Rollovers Work - 401k Rollover Options Prior to 2002, your 401k rollover options were limited. Only the assets from a qualified plan or an IRA could be transferred to an Individual Retirement Account known as a Rollover IRA. Now, eligible rollover distributions to IRAs are permitted from other traditional IRAs, as well as all types of qualified plans, including 401(k), 403(b), and 457 plans. The Rollover IRA Option allows you to: - Defer taxes on funds distributed from the plan. If you take physical possession of the distributed funds, ordinary income tax will apply, as could a 10% premature distribution penalty.- Avoid the mandatory 20% federal tax withholding on distributions paid directly to you.- Shelter earnings while in transit between company-sponsored retirement plans. A Rollover IRA acts as a conduit between plans, thus permitting you to invest those assets in a tax-deferred vehicle. For example, assume upon leaving your job you decide to roll your retirement plan funds into a Rollover IRA. Subsequently, you become eligible to participate in another retirement plan through your new employer. At that time, the entire Rollover IRA, including any earnings that may have accrued, may be rolled into the new plan. The recent legislative changes also permit you to move eligible assets you have contributed to your Traditional IRA to your employer-sponsored plan. You no longer have to keep the rollover assets separate from your contributory IRA funds. This can allow you to consolidate your retirement savings. Please consult your Financial Consultant for further information.- Convert to a Roth IRA after rolling over your retirement plan distribution to a Rollover IRA. Roth IRAs offer the advantage of tax-free distributions of earnings if certain income criteria are met.Making the Right Choice of Options for your Rollover The following statements illustrate just a few of the misconceptions that prevent people from rolling over retirement plan distributions into IRAs. Retirement is a long way off. Time is a key element in saving for your retirement. If you spend your distribution, you must start all over again. This can be an expensive decision and may threaten your future financial stability. For example, if at age 30 you spend your $10,000 distribution instead of investing it, you’d have to put away approximately an additional $65 per month over a 35-year period just to make up the amount you spent (assuming a 7% rate of return over 35 years). I would rather pay the taxes now instead of later. If you take physical possession of your retirement plan distribution, you must pay ordinary income tax at your current tax rate. If you are under age 59 1/2 when you leave your job and take possession, you may owe an additional 10% early distribution penalty. Also, since any future earnings on your distribution will not be tax-deferred, your investments will grow at a considerably slower rate.I am uncertain about my financial future, so I am taking my distribution in cash — just in case. Even if you think you need all or part of your retirement plan distribution to pay for necessary expenses, you still may be better off choosing a direct rollover. Once assets are rolled into an IRA, you have complete control over withdrawals and you can always withdraw money for emergency purposes* or move those assets to your new employer’s retirement plan. *IRS guidelines apply. Please refer to IRS publication 590 for more information. As the previous section illustrates, taking physical possession of retirement assets results in a taxable event that can be quite costly. By only withdrawing funds as you need them, you can limit your tax liability and keep the remainder of your assets growing tax deferred. Furthermore, by taking distributions from a Rollover IRA as part of a qualifying series of substantially equal payments, you may avoid the early distribution penalty tax. I want to treat myself — I’d rather spend the money now. Remember that your retirement plan distribution might well represent the bulk of your savings. Since you probably did not have access to this money before, you may feel as if you have come across “found” money when you get your distribution. Take caution, because spending your retirement distribution could directly affect your retirement lifestyle. For example, if at age 35 you spend your $10,000 retirement plan distribution instead of investing in a Rollover IRA, you would lose the potential to accumulate $76,123 by age 65 (assuming a 7% rate of return compounded annually). I’m more comfortable leaving my retirement assets in my prior employer’s plan. Most retirement plans permit assets to be distributed when you leave your job. By establishing a Rollover IRA you gain control over your retirement funds, and you may broaden the Investment Options available in your prior plan by establishing a Stifel IRA brokerage account. Greater diversity, combined with the ready access of a self-directed Stifel account, may afford you the opportunity to successfully prepare for your retirement in ways that your prior employer’s plan might not. THE MECHANICS OF ROLLOVERS Rollovers can move in one of two ways: 401k Rollover Option 1: Account to Account Known as a Direct Rollover, this type of Rollover allows you to move assets in-kind, keeping any investments that you might have in place. You would also avoid the 20% tax withholding, which is mandatory for all distributions from qualified plans made directly to the account owner. 401k Rollover Option 2: Account to Client to Account When you receive assets and funds directly from your account, you have 60 days from the date of receipt to redeposit (as a rollover*) the funds into an IRA or qualified plan in order to defer taxation. If you are under age 59 1/2 and decide not to redeposit the funds, (a) both income taxes and an early distribution penalty of 10% will be assessed and (b) if the funds are distributed from a qualified plan, you are subject to mandatory tax withholding in addition to the 10% penalty. To defer payment of the taxes, you have the choice to roll these funds into an IRA or qualified plan within 60 days of receipt. To defer the taxes on the withheld portion, redeposit the cash equal in the amount of the withholding and request a refund when you file your tax return. If you do not roll over either amount, the distribution will be taxed as ordinary income and the early distribution penalty of 10% will apply.*Please Note: Only one rollover is permitted from an IRA during any 12-month period. Manage your Future with Stifel & CO., INC. Choosing a Rollover IRA allows you to make investment decisions today to meet your retirement needs of tomorrow. Stifel can be instrumental in helping you assess and plan for those needs. Please consult your tax advisor to determine if a Rollover IRA is right for you. For more information on 401k Rollover Options, please call your Stifel Financial Consultant or order a Rollover Kit. _ ___________________________________________ |
Your Life. Your Money. Take Control Today!  |
| Rollover Center Home | ||
| 401k ROLLOVERS | ||
| Order Rollover Kit | ||
| What is a 401k Rollover? | ||
| How Do I Start a Rollover? | ||
| ROLLOVER IRA s | ||
| Traditional IRA | ||
| Roth IRA | ||
| Which IRA is Best? | ||
| Investment Options | ||
| Contribution Limits | ||
| PLANNING | ||
| Retirement Planning | ||
| Estate Planning | ||
| Wealth Tracker | ||
| Wealth Strategist | ||
| RESOURCES | ||
| Search FAQs | ||
|
About Us |
||
 |
||
 |