Understanding your options
Take the cash
If you choose this option, your distribution may be taxed as ordinary income and may also be subject to a 10% penalty if you are under age 59½*. In addition, current tax law requires 20% withholding on many distributions paid from employer-sponsored retirement plans**. In other words, your employer will automatically withhold 20% from your distribution before the check is cut, and you will receive 80%. You may not be eligible for any tax refund until you file your tax return the following year.
You may be eligible to reduce your tax burden through income averaging***. Income averaging allows you to take your full distribution in cash, but pay taxes on it as though you were receiving equal installments over a specified number of years. While it does not provide the tax-deferral benefits of a rollover, income averaging can greatly reduce your tax liability. Check with your tax adviser to see if you are eligible.
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