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401K BUSINESS & PERSONAL
Exploring your distribution options

Direct Rollover to an IRA
Indirect Rollover
Cash Distribution
Savings Remain in Previous Employer's 401(k) Plan
Direct Rollover into Your New Employer's Plan

Direct Rollover to an IRA - Rolling over 100% of your distribution directly into a Rollover IRA from your previous employer's 401(k) plan.

Tax Consequences:
No taxes will be withheld.
Advantages:
  • Your distribution will not be subject to the premature distribution penalty that may apply if you are under the age of 59 ½.
  • 100% of your distribution will continue to grow tax-deferred.
  • You have control as to where to invest your retirement savings.
  • You have control as to who to use to invest your retirement savings.
  • You have control as to how to invest your retirement savings. A huge advantage when it comes to diversification.
  • You may have the option to transfer your savings into a future employer's plan provided you do not commingle the rollover with other IRA contributions.
  • You may have the flexibility to receive income from your savings before age 59 ½ without penalty by setting up a periodic payment program through IRS code 72(t).
Disadvantages:
  • You may not be eligible to roll over your entire distribution. Check with your employer to determine whether any part of your distribution cannot be rolled over.
  • Loans are not permitted if rolled over to an IRA.

Indirect Rollover - Taking all of the distribution from your previous employer's 401k(k) plan in cash and rolling over all or part of your distribution to your Rollover IRA or new employer's retirement plan.

Tax Consequences:
20% of the entire distribution may be withheld by your employer as pre-payment of federal income tax due on the portion not rolled over.

Advantages:
  • The portion of the distribution you roll over will not be subject to the premature distribution penalty that may apply if you are under the age of 59 ½.
  • Your rollover account balance will continue to grow tax-deferred.
  • You have control as to where to invest your retirement savings.
  • You have control as to who to use to invest your retirement savings.
  • You have control as to how to invest your retirement savings. A huge advantage when it comes to diversification.
  • You may have the option to transfer your savings into a future employer's plan provided you do not commingle the rollover with other IRA contributions.
  • You may have the flexibility to receive income from your Rollover IRA before age 59 ½ without penalty by setting up a periodic payment program through IRS code 72(t).
Disadvantages:
  • Any amount not rolled over to a retirement plan within 60-days will be subject to federal income taxes and may be subject to the premature distribution penalty.
  • If you decide to roll over 100% of the distribution, the 20% withheld must be made up from personal assets.

Cash Distribution - Taking all of the distribution from your previous employer's 401(k) in cash.

Tax Consequences:
  • 20% of the entire distribution may be withheld by your employer as pre-payment of federal income tax.
  • The entire distribution may be taxed as current income.
  • Your distribution may be subject to the 10% premature distribution penalty if you are under the age of 59 ½.
Advantages:
  • It can provide money for an immediate emergency - if no other source is available.
  • If you are eligible, you may be able to receive special tax treatment on the distribution. Be sure to check with your tax advisor before taking your distribution.
Disadvantages:
  • Your savings no longer compounds on a tax-deferred basis.
  • You may have to start your retirement investing over from zero.
  • The later you begin saving, the less time your assets have to grow.
  • You may have to settle for a less comfortable retirement or postpone it until you have enough money.
  • Your savings cannot be transferred into a future employer's retirement plan.

Savings Remain in Previous Employer's 401(k) Plan - Not doing anything. Leaving your 401(k) exactly where it is.

Tax Consequences:

No taxes will be withheld.

Advantages:
  • Your distributions will not be subject to the premature distribution penalty that may apply if you are under the age of 59 ½.
  • 100% of your distribution will continue to grow tax-deferred.
  • Your previous employer's 401(k) plan may permit loans.
Disadvantages:
  • No control - you are still under the limitations and rules of your previous employer's 401(k) plan.
  • No control as to where you can invest your retirement savings.
  • No control as to who you can use to invest your retirement savings.
  • Your investment options may be limited. Could prove as a disadvantage in trying to diversify. Your previous employer has the authority to change or control investment options in the future.
  • No Flexibility - Withdrawals and distributions are based on the 401(k) plan's provisions.
  • The employer may have the option to cash out your distribution to you if less than $5,000.

Direct Rollover into Your New Employer's Plan - Rolling over 100% of your distribution to your new employer's retirement plan.

Tax Consequences:

No taxes will be withheld.

Advantages:
  • Your distributions will not be subject to the premature distribution penalty that may apply if you are under the age of 59 ½.
  • 100% of your distribution will continue to grow tax-deferred.
  • Your new employer's plan may permit loans.
Disadvantages:
  • No control as to where you can invest your retirement savings.
  • No control as to who you can use to invest your retirement savings.
  • Your investment options may be limited. Could prove as a disadvantage in trying to diversify. Your new employer has the authority to change or control investment options in the future.
  • No Flexibility - Withdrawals and distributions are based on the 401(k) plan's provisions.

If you are under age 59 ½, a 10% premature penalty may be assessed on all distributions you receive. Waiver of the 10% premature penalty may apply in some specific circumstances. Employees should consult their tax advisor pertaining to their particular situation.

By taking substantially equal periodic payments, you avoid incurring the 10% premature distribution penalty. The substantially equal distribution schedule selected must continue for at least 5-years or until you reach age 59 ½, whichever is longer, or you will be subject to a 10% premature distribution penalty on all payouts already received. Further details with respect to substantially equal periodic payment formulas are provided in IRS Notice 89-25.

All distributions from your retirement account are taxable in the year received. Please note, that at age 70 ½, you must begin taking minimum distributions from your retirement plan.

Distributions for any of the above reasons involve specific tax regulations and options. Please consult your tax advisor before requesting the distribution. This information does not constitute tax advice.

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