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Time To Rollover That Retirement Account

Rollover That Retirement Account

As Progress Energy and Cisco go thru the process of layoffs and severance packages you need to consider what you want to do with your 401-K or retirement account. You have a few options and you definitely need to know the consequences of each choice.

Option 1 would be to take a lump sum distribution. You’ve worked hard and you deserve that money right? The problem with this is the IRS will be waiting with open arms. Come next April your distribution would be counted as ordinary income along with any other earnings you have. That means you would probably lose over 35% to taxes. For most this is not a good choice.

Option 2 would be to leave the money in an employer-sponsored plan if they allow it. The negative to this is that you lose all flexibility and control. You have restricted access to your money and there will be a mandatory 20% withholding for future distributions. You are also limited to the investment choices that the company provides.

Option 3 if you continue working would be to roll your old plan into your new plan.

Option 4 is the most popular option of choice and that is to roll the account directly into an IRA. You will have continued tax-deferred growth. You also would have control over when you access the money without the employer restrictions. There would be no 20% federal mandatory tax withholding on distributions. You would retain complete flexibility in your investment choices whether you hire a financial advisor or do it alone. Lastly you would have the possibility of a future Roth conversion.

In summary you really need to think thru your choices and make the decisions that will help you meet your long term goals. I would suggest meeting with a financial advisor that specializes in retirement planning. (Caution they all will say they do.) If you are going to retire that is usually not the same advisor that has been managing the account. Retirement comes with it’s on special circumstances which is how to live off these accounts for the rest of your life. This should be handled totally different than an advisor just interested in growing your money. Risk becomes a huge issue at this stage. If you need further assistance my firm Complete Financial Solutions, Inc. specializes in retirement planning. We have locations in Raleigh, Fuquay-Varina, and Wilmington. Give us a call @ 1-888-316-6232 or visit our website www.completefinancialsolutions.org

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