Skip to main content

THE PROS AND CONS OF EARLY RETIREMENT PLAN ROLLOVERS

Sticky note with 401K to IRA written on it on hundred dollar bills next the calculator an pen. After retirement people can roll their 401(k) account balance over into an IRA | Outlook Wealth Advisors

To start, some basics.

Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if you take one before age 59½, a 10% federal income tax penalty commonly applies.1 In addition, 20% of the withdrawn amount is withheld for tax purposes. Generally, once you reach age 72, you must begin taking required minimum distributions.

Now, the fine print.

You may be able to take a distribution from your qualifying, employer-sponsored retirement plan while still working, via an in-service non-hardship withdrawal.2 This is done by arranging a direct rollover of these assets into an individual retirement account (IRA) to potentially avoid both the 10% penalty and the 20% tax withholding in the process. It’s important to note that this option is only available if allowed by your employer.

It may be smart to speak to your financial professional before making any changes.

Generally, distributions from traditional IRAs must begin once you reach age 72. The money distributed to you is taxed as ordinary income. When such distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty.

The criteria for making in-service non-hardship withdrawals can vary. Some workplace retirement plans simply prohibit them. Others permit them when you’ve been on the job for at least five years when assets in your plan have accumulated for at least two years, or you are 100% vested in your account.2

Generally, distributions from traditional IRAs must begin once you reach age 72. The money distributed to you is taxed as ordinary income. When such distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty.

The criteria for making in-service non-hardship withdrawals can vary. Some workplace retirement plans simply prohibit them. Others permit them when you’ve been on the job for at least five years when assets in your plan have accumulated for at least two years, or you are 100% vested in your account.2

Weigh the pros and cons.

Who knows if your reinvested assets will perform better in an IRA than they did in your company’s retirement plan? Only time will tell. Right now, you can put up to $7,000 into an IRA, annually, if you are 50 or older.3 If your employer matches your retirement plan contributions, getting out of the plan may mean losing future matches.

#401k #IRA #Rollover #Houstontx #RetirementPlanning

A scale showing how hard is to find balance between pros and cons of early retirement | Outlook Wealth Advisors

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmdshttps://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributionshttps://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits