IRA and 401(k) Rollovers

Many employees and executives have built up significant assets in company retirement plans and IRAs. As they get closer to retirement, accessing these assets will become very important in their retirement plans. Understanding what choices you have in the distribution of these assets and how to possibly avoid unnecessary taxation will be very important for your future retirement. Both 401k plans and IRAs grow tax deferred. When income is taken out of these plans in retirement, the distribution of these plans is 100% includable in your federal income tax and your state income tax as well.

One of the biggest financial decisions a person will ever make before they retire is whether or not to rollover their company 401k plan. Many people who have built up significant assets in their 401k plan and are under age 59 1/2 can retire earlier than they ever dreamed. Most think they can’t retire before that age because of the 10% IRS tax penalty if you take money out early. Well, there is an IRS tax law which allows people who qualify with retirement assets in 401k, IRA, 403b, and 457 plans the opportunity to receive retirement income from their assets before age 59 1/2, and avoid the 10% tax penalty. Another tax consequence you want to avoid is the 20% withholding from 401k rollovers, if the rollover is not transferred properly to a personal IRA account. Consulting with a tax professional should help you to avoid these costly tax mistakes.

Another very important decision people face as they approach retirement is what to do with their company pension plan. Most company pension plans offer the opportunity to take the pension in a lump sum and rollover the assets to a personal IRA. In fact, you may not want to take your company pension plan payout when you understand what happens if you do. If you take the pension payout, the income you receive is normally lower and the pool of money that accumulated in the plan converts to an income stream for you. That means you no longer have access to all the money you built up in the plan, and if you pass away your surviving spouse may have no access to it either.

By moving your company pension to a personal IRA, you will possibly receive more monthly income for yourself and provide your spouse with greater income should you pass away. Another important benefit to taking your pension in a lump sum is that you will have access to the entire pool of money you have built up over the years. In fact, this pension plan rollover can pass onto your spouse and two more generations if planned correctly. However, if you take your pension payout from the company, that pool of money is no longer there. Working with professionals who understand how to maximize your 401k and pension plan rollover is essential.

So you can see what an important decision it is to properly take income from your retirement plan assets. There are ways to protect these retirement assets in todays market condition while protecting your principal.