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Take the Money and Run...or Not

Posted: March 27, 2018

Take the Money and Run . . . or Not

Have you thought about how you're going to receive the money you've accumulated in your employer's retirement plan if you change employers or retire? Your choice could make a big difference in how much current income tax you'll pay, your retirement income and how long your retirement resources will last.

Here's a look at some ways you might be able to withdraw your money.

The lump-sum option

If your plan allows, you may be tempted to take your vested account balance in a lump sum as a one-time cash payment when you retire. You'll owe federal (and possibly state) income tax (plus an additional penalty tax for early withdrawal if it applies) on the taxable portion of the distribution in the year you receive it. This tax bite could leave you with a lot less money to generate retirement income.

IRA rollover option

Another option is to have the plan trustee directly transfer (roll over) your distribution to a traditional individual retirement account (IRA). With a direct transfer, no income tax will be due right away, and all of the money transferred to the IRA can stay invested tax deferred until you withdraw it.

You can have the distribution paid to you and then roll it over yourself. However, the plan will be required to withhold 20% for federal income-tax purposes. Be aware that you have 60 days to complete your rollover or you'll owe taxes (and possibly a penalty) on the entire amount you didn't roll over.

Annuity option

You may have the option of receiving your benefits in the form of an annuity. An annuity* generally will provide you with monthly payments beginning at retirement and continuing for your lifetime (and perhaps a spouse's or beneficiary's lifetime).

Whether you're close to retirement or not, work with your financial professional and tax advisor to cut taxes and stay focused on your end goal - a comfortable retirement income.

* An annuity may impose charges, including, but not limited to, surrender charges, mortality and expense risk charges, administrative fees, underlying fund expenses and feature charges that can reduce the value of your account and the return on your investment. You will have to pay federal income tax on any earnings you withdraw from the annuity during retirement or before. Payments and guarantees are subject to the claims-paying ability of the issuing insurance company and the underlying investment options are subject to market risk and may lose value.

Modified content. Copyright © 2018 by Newkirk Products. Reprinted with permission. All rights reserved.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CBSI is a registered broker/dealer in all fifty states of the United States of America. The representative may also be financial institution employee that accepts deposits on behalf of the financial institution. Representatives are neither a tax advisors nor attorneys. For information regarding your specific tax situation, please consult a tax professional. For legal questions, including a discussion about estate planning, please consult your attorney.

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© CUNA Mutual Group

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