Distribution options when retiring

Keep your goals in mind when re-evaluating your retirement income strategy.

Option 1: Leave your assets in your current plan

If you like your current plan and it allows, you may want to leave your assets where they are. If you choose this option, you can create a systematic withdrawal plan that provides income during retirement. When evaluating this option, you should ask yourself whether:
  • You're content with your current plan
  • You like the investment options in the plan
  • The current level of flexibility and control suits your needs
  • You’re aware of plan costs

Option 2: Roll your assets into an IRA

If you have assets in more than one retirement account, a direct roll-in may allow you to consolidate your assets while maintaining tax-deferred growth. You may find that an IRA makes it easy to manage your money and take withdrawals. You may also have the option to roll into an annuity if you want an investment that, for an additional cost, has a guaranteed or lifetime income option. Both IRAs and annuities come with unique fees and surrender charges, so make sure you understand your options before you decide.

When evaluating this option, you should ask yourself whether:

  • You want more flexibility than your employer’s plan offers
  • You prefer having a single IRA
  • You want access to Roth options
  • You’re aware of plan costs

Option 3: Take the cash

Taking a cash distribution may cost you now and later. Depending on your age, you may pay taxes and penalties that greatly reduce your savings, and you may lose the wealth-building power of compounding over time. Make sure you understand the pros and cons before deciding to cash out.

What happens to Jim’s $50,000 retirement plan savings if he cashes out?

Tax or penalty type

Description

Amount

Standard tax

The plan administrator automatically deducts 20%, as required by law.
20% of $50,000 = $10,000

-$10,000

Early withdrawal penalty

Jim is under age 59½, the age when he can begin taking penalty-free withdrawals. He doesn’t qualify for any exceptions to early withdrawal penalties, so he owes an additional 10% in penalties.
10% of $50,000 = $5,000

-$5,000

Tax bracket adjustment

Jim is in the 32% income tax bracket. Only 20% was deducted under the standard tax penalty. He has to make up the 12% difference.
12% of $50,000 = $6,000

-$6,000

State and local taxes

We deducted $2,500 for state and local taxes, based on a 5% average tax rate; this amount may be higher or lower, depending on where Jim lives.

-$2,500

Final distribution

Jim’s taxes and penalties add up to $23,500, which is subtracted from his savings total. His $50,000 distribution now totals only $26,500.

$26,500

Ask a financial professional for help understanding your options so you can make the decision that’s right for you.