| Tax considerations
Until now, your retirement investment has received tax-favorable treatment.
Your decision about what to do with your assets depends largely on whether
you need your money now or prefer to keep it invested. In either case, you'll
want to consider the impact of taxes, both on your current financial situation
and on the future growth of your money.
Consult your financial advisor
Although the prospect of a large payout from your retirement plan may make
you feel as if you've won the lottery — remember, you worked hard to
accumulate this money. Don't let taxes and penalties take a big bite out of
what you've achieved through years or even decades of investing. Your best
course of action? Plan a strategy to keep your money working for you before
and during retirement.
Talk to your financial advisor who can help you with:
- A plan for continued tax-favored investment of the money you don't need right away
- Your choices regarding shares of company stock you are entitled to receive from your retirement plan
- A schedule for withdrawals of your money during retirement
Take a look at the example below, which shows the potential growth of a tax-deferred IRA Rollover compared to a taxable investment.
The IRA Rollover and the Power of Tax-Deferred Growth
For illustrative purposes only. Assumes a $50,000 eligible rollover distribution,
a hypothetical 8% annual rate of return, a 28% tax bracket, and a 15% capital
gains tax. Investment return and principal may fluctuate; therefore this information
is not indicative of the performance of any specific investment.
This chart illustrates a hypothetical $50,000 distribution invested in an
IRA rollover versus a taxable investment. The taxable investment reflects
the payment of 28% federal tax and 10% early withdrawal penalty on the distribution,
leaving the investor with a starting balance of $31,000. Earnings on the taxable
investment were taxed annually at 15% and the taxes deducted from the balance.
On the other hand, when the entire $50,000 distribution was invested directly
into an IRA rollover and not subject to current taxes and penalties, earnings
would have grown tax deferred until withdrawn. The 28% federal tax on lump
sum distributions is also reflected at the end of each period-10, 15 and 25
years. Individuals who do not take a lump-sum distribution may choose to make
systematic withdrawals over time from their IRA rollover accounts, which continues
the tax-deferred growth potential of the assets that remain in the account.
How do I know if my plan qualifies for rollover distributions?
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