401(k) Distribution Dilemmas

How you will take your 401(k) distributions when you retire can be an important consideration in executing your post-retirement plan.

We all look forward to the day when we can finally kick back, relax and collect our carefully-planned and hard-earned retirement savings. But rushing into withdrawing your retirement funds could cost you a great deal of money in taxes. That’s why planning now for that day is so important.

If your employer requires distribution of your 401(k) plan funds when you leave employment, rolling it over to an IRA may be your only option for avoiding unnecessary taxes. A lump sum distribution directly to you will probably bump you into a higher tax bracket.

Some employers, however, allow retirees to leave those funds in the company’s 401(k) plan. Given the option – leaving your money in the plan or rolling it into an IRA – which do you choose?

Money left in the 401(k) has the opportunity to continue to grow tax-deferred. You remain subject to the rules of the plan and the investment options offered, and to any changes the employer makes to the plan after you retire. Money in your 401(k) account is protected from creditors in a personal bankruptcy or lawsuit. If you die, your beneficiaries have to take a lump sum distribution.

Despite the ease and attraction of leaving your money in your 401(k) plan, if the plan has limited or poor investment choices, you may want to opt for the rollover.

Rolling your 401(k) savings into an IRA allows you to continue investing and growing your assets tax deferred. It also gives you more control over when and how to invest your money and, to some extent, when you take distributions. If you have multiple qualified plans (for example, accounts at several different employers), consolidating them into an IRA can not only make them easier to manage, but may help you qualify for discounts when investing. If you die, distribution of IRA funds to your beneficiaries may be spread over several years. However, funds in your IRA have limited protection from creditors.

You should note that rollovers to an IRA from other qualified plan accounts are best made directly to avoid incurring any penalties or additional taxes. If you are under age 59½, you will be subject to a 20% automatic withholding for income tax plus a 10% penalty. Withdrawn funds must be in the new account within 60 days, or the amount you received will be taxable.

You are not required to take distributions from a 401(k) or traditional IRA until age 70½. The benefits of tax-deferred compounding usually make it advantageous to access these accounts after using funds from other accounts. Required minimum distributions – the amount the government makes you take out of qualified plans after age 70½ – cannot be used as contributions to another qualified plan. Roth IRAs have no required minimum distributions.

No matter which method you choose for taking distributions from your 401(k) during retirement, the key is stick to your investment plan and make sure that you’re choosing the most appropriate method of withdrawal. Your financial professional can be an important resource for helping you make those decisions.

**Written by Securities America for distribution by Johnny Moore**

Securities America and its advisors do not provide tax advice. Please consult with your tax professional regarding your individual situation.

Go back to my page

Featured Posts
Recent Posts
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

801 S. Fillmore, Suite 530

Amarillo, Texas 79101


Click to check the background​
of this firm FINRA's BrokerCheck

The BBB has determined this business meets accreditation standards, which include a commitment to make a good faith effort to resolve any consumer complaints. BBB Accredited Businesses pay a fee for accreditation review/monitoring and for support of BBB services to the public. BBB accreditation does not mean that th ebusiness products or services have been evlauted or endorsed by the BBB, or that the BBB has made a determination as to the business product quality or competency in performing services.

Navigation Financial Group is not a CPA Firm. Advisor Representatives are Registered Representatives of and offer securities through Securities America, Inc., member FINRA/SIPC. Planning and Advisory Services available through Securities America Advisors, Inc. $ymbil is offered by Ladenburg Thalmann Asset Management, Inc. (LTAM). Navigation Financial Group and its affiliates are independent of Securities America and LTAM. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed. Not FDIC Insured, No Bank Guarantees, May Lose Value. Not a Deposit and Not Insured by any Government Agency. As of January 1, 2020, the California Consumer Privacy Act (CCPA) suggests the following link as an extra measure to safeguard your data: Do not sell my personal inforamation.

© 2020   |   All Rights Reserved