Post on 30-Dec-2015
transcript
Welcome Information Process Your Role
Sit Back – Relax – Ask Questions – Get Info – ACT!
A Guide To Your Distribution Options
Welcome Information Process Your Role
What we’ll cover today
Options
Choices you have for your money
Info
Help in making your decision
Action
What you need to do
Welcome Information Process Your Role
How to make a great decision
First, evaluate your goals
Confirm your retirement goals with significant others
• When to retire
• Where to retire
• What to do in retirement (standard of living)
Answer three simple questions
Then, select the best fit for you
Simply match goals to the best choice
Welcome Information Process Your Role
Evaluate your goals
1. Do you need to use the money for immediate expenses?
Yes
No
Welcome Information Process Your Role
Evaluate your goals
2. Do you want to defer paying current income taxes and avoid penalties?
Yes
No
Welcome Information Process Your Role
Evaluate your goals
3. Do you want more control and investment choices?
Yes
No
Welcome Information Process Your Role
Select your best fit
Immediateexpenses
Defer taxes& add choice
Yourretirement savings
Goals
Best fit
Defer taxes
Rollover IRA
Rollover IRA
Cashdistribution
Cashdistribution
Currentplan
Currentplan
New employer’s plan
New employer’s plan
Welcome Information Process Your Role
Select your best fit
Immediateexpenses
Yourretirement savings
Goals
Best fit Cashdistribution
Cashdistribution
Welcome Information Process Your Role
Taking a cash distribution
Pros
Meets your current expense needs
May be eligible to take a partial cash distribution
Cons
20% mandatory federal tax withholding
10% early withdrawal penalty (prior to age 59½)
Taxed as ordinary income in year distributed
No more tax-deferred growth
$50,000Distribution amount
$40,000Less 20% mandatory -$10,000federal withholding
$35,000Less 10% early withdrawal penalty* -$5,000
$32,500Less additional ordinary federal -$2,500 income taxes (5%)
$29,500Less state and local income taxes (6%) -$3,000
Consider the costs
*For distributions prior to age 59½.
This is for illustrative purposes only. Tax withholding assumes a 25% federal tax rate and 6% state and local taxes. Penalties and taxes, other than mandatory withholding, are paid later; they are not taken out of your distribution. Your situation will vary.
Age 55 or over & retiring No penalty
Under age 59½, if used forextensive medical bills or disability
Penalty maybe waived
Exceptions to early withdrawal penalty
Welcome Information Process Your Role
Select your best fit
Immediateexpenses
Yourretirement savings
Goals
Best fit
Defer taxes
Cashdistribution
Cashdistribution
Currentplan
Currentplan
Welcome Information Process Your Role
Sticking with the current plan
Pros
Potential for tax-deferred growth continues
Retains some of your current plan’s services
Reserves ability to move to a new plan
“Potential” Cons
Access to money is based on plan provisions
Inability to make additional contributions
Assumes balance of $5,000 or more.
Earning 8% compounded monthly savings after 20 years from a $50,000 distribution
$107,284
$50,000$29,500
$246,340
Changes in tax rates and the tax treatment of earnings may impact results. You should consider your investment horizon and income tax brackets, both current and anticipated, when making an investment decision as these factors may further impact the results. This is for illustrative purposes only and not meant to represent the return of any investment option. Your situation will vary. Taxes are due on the tax-deferred account upon withdrawal.
Continue to invest tax-deferred
Take cash*
Invest in taxable account
Investment earningstaxed at 18.75% each year
Tax-deferred benefits
*Distribution taxed: 25% federal, 10% early withdrawal penalty, 6% state and local.
Welcome Information Process Your Role
Select your best fit
Immediateexpenses
Yourretirement savings
Goals
Best fit
Defer taxes
Cashdistribution
Cashdistribution
Currentplan
Currentplan
New employer’s plan
New employer’s plan
Welcome Information Process Your Role
Moving to a new employer’s plan
Pros
Potential for tax-deferred growth continues
Plan may allow loans
Ability to make additional contributions
“Potential” Cons
Investments limited to those in new plan
Access to money based on plan provisions
Assumes plan accepts rollovers.
Welcome Information Process Your Role
Select your best fit
Immediateexpenses
Defer taxes& add choice
Yourretirement savings
Goals
Best fit
Defer taxes
Rollover IRA
Rollover IRA
Cashdistribution
Cashdistribution
Currentplan
Currentplan
New employer’s plan
New employer’s plan
Welcome Information Process Your Role
Rollover IRA
Pros
Potential for tax-deferred growth continues
Expand investment options
Control access to your savings
Reserve ability to move to a new employer’s plan
Cons
No loans available
Pay annual account fees, if applicable
Direct Rollover IRA
Check made payable to new IRA custodian
No immediate tax consequences
Two-step process
Complete your plan distribution form and select the direct rollover option
Complete an IRA rollover application for the receiving financial institution
A direct rollover can be processed at any time
*The 60-day rule will apply with an indirect rollover to an IRA.
Welcome Information Process Your Role
Frequently asked questions
Can I take a partial cash distribution?
What if I have an outstanding loan?
What about my company stock?
Do I need to make a decision right away?
There is no deadline to make a decision with your plan assets, unless:
• You have an outstanding loan balance
• Your account balance is less than $5,000
How should I invest?
Welcome Information Process Your Role
What do I do now?
If you’re taking a cash distribution
Contact your plan provider to initiate a distribution
If you’re sticking with your current plan
In most cases, no action is required
Welcome Information Process Your Role
What do I do now?
If you’re moving to a new employer’s plan
Make sure your new plan accepts rollovers
Contact your current plan provider to initiate a distribution.
Contact your new plan provider to initiate a rollover.
If you’re doing a direct rollover to an IRA
Complete your plan distribution form and select the direct rollover option
Complete an IRA rollover application for the receiving financial institution
Welcome Information Process Your Role
In summary…
Evaluate your goals
Don’t forget the “cost” of distributions
Select the best fit
Keep on track for a successful future
Make your move
Let us help you every step of the way
No action is required if you decide to leave your balance in the current plan, unless:
• You have an outstanding loan
• Your account balance is less than $5,000
Call 1-800-638-7780 to request a prospectus, which includes investment objectives, risks, fees, expenses, and other information that you should
read and consider carefully before investing.
T. Rowe Price Investment Services, Inc., Distributor.