| At some point in the future, you will no longer be | | | | does not have $20,000 from other sources, that |
| working where you are. Whether it's because you | | | | amount will be treated as a distribution and will be |
| retire, get laid off or change employers, it's your | | | | subject to income taxes and penalties. |
| responsibility to be prepared. It's a necessity -- your | | | | Sure, Dan will get this $20,000 back in the form of |
| retirement depends on it. | | | | taxes withheld when he files his tax return, but that |
| That's because when it comes to your pension funds, | | | | could take a number of months. Why go through this |
| you have several options open to you when you leave | | | | hassle when using the correct transfer method will |
| your job. And if you don't know what those options | | | | avoid the 20% withholding and will not make you |
| are, and choose the wrong one, you will have the IRS | | | | scramble to find funds to cover the withholding |
| smack dab in the middle of your IRA. This means your | | | | amount? |
| chances of having the opportunity for long-term tax | | | | Build Your Wealth and Retire Financially Secure With |
| deferred wealth building become very slim. | | | | Your 3 Other Options |
| Option 1: Taking a lump-sum distribution (cash out) | | | | Your other options include (1) leaving your money with |
| Off the top, you will lose 20% of your accumulated | | | | your former employer's plan; (2) rolling it over to your |
| money because your employer is required to withhold | | | | new employer; or (3) rolling it over to an IRA. |
| this amount for federal taxes. Cashing out your | | | | Each of these options will help keep the IRS out of |
| retirement plan is counted as receiving ordinary income, | | | | your IRA, if you choose wisely and follow all the rules, |
| and depending on your tax bracket (ordinary rates | | | | which can be complex. However, there's more to |
| now reach 35%) you may end up owing even more | | | | consider than merely the tax implications. What about |
| than that 20%, and that doesn't include the state taxes | | | | growth? Safety? The next Enron? |
| that may apply as well. | | | | Retire Financially Sound or Retire With Debt - It's Your |
| Furthermore, if you are younger than 59½ (age | | | | Responsibility To Make The Right Choice |
| 55 in some limited cases) you will be penalized for an | | | | So, in conclusion, taking a lump-sum distribution (cash |
| additional 10% off the top. So, our old pal Uncle Sam | | | | out) from your 401K means that all the money you |
| just slashed your retirement savings you have | | | | withdraw will be subject to income tax at ordinary |
| accumulated for your Golden Years by a third or | | | | income rates that now reach 35%. And don't forget |
| more! | | | | that additional penalty of 10 percent on top of the |
| Avoid this entirely. (In fact, it's difficult to even think of it | | | | ordinary income tax if you leave your job before age |
| as an "option.") | | | | 55. This will leave you with no tax deferred wealth |
| For example, Dan, age 50, left his job. He had $100,000 | | | | building for you and your family, which means there is |
| in his employer's 401(k) plan. Dan decided to take the | | | | a good chance you will not retire financially secure. Is |
| money from the plan and open a self-directed IRA | | | | that what you want for you and your family? |
| account. As a result Dan's former employer sent him a | | | | Avoiding all the pitfalls and dangers can be |
| distribution check for $80,000 -- Dan's $100,000 | | | | accomplished by choosing the right kind of rollover for |
| account balance, less 20% withholding. To avoid all | | | | your IRA, based on your specific, individual and unique |
| income taxes and penalties, Dan must not only deposit | | | | situation. |
| the $80,000 check within 60 days of the distribution, he | | | | Remember, this is your retirement nest egg. The better |
| also must deposit $20,000 (the amount withheld by his | | | | you can protect it and invest it, the farther along the |
| employer) by that same date. The $20,000 must | | | | road to a glorious retirement you will find yourself. |
| come from sources outside of the distribution. If Dan | | | | |