KnowHow Archive

Plan Sponsor Guide Participant Guide

You Can Take It with You but Should You?

Not that you are thinking about it at the moment but, sooner or later, there may be a job change in your future (including that most popular of job changes, the one to retirement). When it comes, there will be a lot to think about—so, rather than wait until then, take a few minutes now to consider what you should do with your retirement plan savings.

In all likelihood, your decision will boil down to:
 
How large your distribution is
How much you need the money now
How much taxes you will have to pay
How old you are
What your current plan allows
If you have a new employer, and what that plan allows
 

 Your Options The Upside  The Downside 
 Stay Put —  
 Leave it in your existing retirement account
  Don't have to pay taxes (income and penalty)
until you actually take the money out of the plan.
  Probably get to keep your existing fund options.
  Your account continues to grow on a tax-deferred basis.
  You can't add to this account, or combine it with other accounts.
  There may be restrictions on your access to this account.
  Your current plan may not allow this option.
  Take It with You —
 to another employer plan
  Don't have to pay taxes (income and penalty) until you actually take the money out of the plan.
  Your account continues to grow on a tax-deferred basis.
  You may be able to borrow against these balances (depending on plan provisions).
  New employer plan may not allow this option.
  Can't roll over company stock (if any).
  You may not have access to funds you like in your old plan.
  Have to liquidate existing fund options—and choose new options.
  Your balances may be out of the market for a period.
 Take It with You —
  to an IRA
  Don't have to pay taxes (income and penalty)
until you actually take the money out of the plan.
  May get to keep your existing fund options.
  Your account continues to grow on a tax-deferred basis.
  Can roll it over to another employer plan later on.
  Lose tax benefits of company stock (if any).
  You may not have access to funds you like
in your old plan.
  May have to pay higher fees.
  May have to liquidate existing fund options—and choose new options.
  Your balances may be out of the market for a period.
  Can't borrow against those balances.
 Take It with You -
  in cash
  You get the cash now, and can do whatever
 you want with it.
  Have to pay taxes—20% immediately as a withholding (could be more when you file).
  Have to pay 10% early withdrawal penalty (if you are under the age of 59 1/2).
  Lose tax-deferred savings growth.
  Could spend your hard-earned retirement savings too soon.
 Buy an Annuity  Avoid 10% premature withdrawal penalty.
  Only have to pay income taxes on amount(s) received.
  Have to find, choose.
  Fees can be high (though not always visible).
 


editors@plansponsor.com