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- Federal guidelines allow plans to offer several
options; hence, the specific available to you are dependent on your plan. Here are the
allowable options:
- Lump-Sum Distribution - Most plans provide for a
lump-sum distribution (you get your entire account balance at one time) or allow you to
leave the money in the plan until the April after you turn age 70 1/2. If you are no
longer working at that age you will be required to begin receiving minimum required
distributions. Please note that if you wait until the year after you turn 70 1/2 to begin
your distributions, you will be required to take two distributions in the same year and
you would pay additional taxes on the second distribution.
- Periodic Distributions - You may be able to take
your money out in periodic distributions during a number of years or based on life
expectancies. These distributions will be fully taxable, and, if they extend beyond 10
years, they cannot be rolled to another tax deferred investment, like an individual
retirement account (IRA). Some plans will allow you to receive less than 10 annual
distributions. If you choose this option, you may roll the taxable portion of each payment
to an IRA. In most cases, you cannot change the amount you receive once the distributions
have begun.
- Annuity - Still other plans may allow you to
purchase an annuity with the proceeds of your account and begin an immediate income flow.
- If you receive the balance of your account in the form of a
lump-sum distribution, you may roll it directly to an IRA and have total control over your
cash flow. If you are between the ages of 59 1/2 and 70 1/2, you may withdraw as much as
you want each year. You will pay ordinary income tax but no 10 percent early withdrawal
penalty. If you are under age 59 1/2, you may begin early withdrawals without paying the
10 percent penalty if you receive substantially equal, periodic payments (based on life
expectancies) for the longer of five years or until age 59 1/2. In other words, if you
were 52 the amount that is calculated for you to withdraw would have to be taken each year
for at least the next seven and a half years - that is until you are 59 1/2. On the other
hand, if you were 58 when you started receiving payments, you would have to continue for
five years -- until age 63. If you were 70 1/2 or older, the amount you would withdraw
would be calculated for you based on your life expectancy or the joint life expectancies
of you and your designated beneficiary.
The Independent
Adviser Corporation is a 100% Independent and 100% Objective Financial
Advisory Firm that writes buy-side investment research. Our network of
independent Fee-Only Financial Advisers serves individuals, families and
businesses. They provide financial planning services, tax advice and offer
professionally managed asset accounts. They do not underwrite corporate
securities nor do they sell any proprietary products. To find out more or
get a FREE consultation Ask
The-Adviser.com.
Click here to learn about our 401(k) IRA Rollover Accounts
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An independent Financial
Adviser can help you review your options.
Your Final decision will
significantly impact your taxes.
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