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What are my 401(k)
lump-sum distribution options if I leave my job?
Basically, there are four choices: 1)
rolling the money into an IRA, 2) rolling it into a new 401(k)
plan, 3) leaving it in the existing plan, or 4) taking the money
and paying the tax.
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What is a 401(k)
vesting schedule?
A vesting schedule is a provision that
entitles departing 401(k) participants to a specific percentage
of an employer's matching funds. Many 401(k) plans have a 6
year vesting schedule that permits departing employees to take
100% of matching funds only after 6 years of work service time
have been fulfilled.
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What are the benefits
of a direct rollover into a traditional IRA?
For direct rollovers, no tax is withheld
and the employee avoids current income tax on the rollover distribution.
Additionally, a traditional IRA may offer more investment options
versus a limited 401(k) menu of mutual funds.
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What are the distribution
advantages of an IRA?
Unlike 401(k) plans, distributions from
traditional IRAs, ROTH IRAs, and SIMPLE IRAs are not subject
to the mandatory 20% tax withholding requirement. However, if
the distribution is not rolled over into a plan of the same
kind within 60 days, the entire distribution generally becomes
taxable.
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What are the investment
options in an IRA?
In an employer sponsored retirement plan
like a 401(k) or 457 the employer usually determines the investment
options of the plan. With an IRA, the account owner may determine
the universe of investment options. Some examples of investment
choices include annuities, exchange traded funds, bonds, individuals
stocks and certificates of deposit.
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What is an IRA?
Individual retirement account or IRA
is a type of personal retirement savings vehicle. Three important
kinds of IRA's are traditional, ROTH, and SIMPLE.
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How do I establish
an IRA account?
Contact one of our rollover specialists
for assistance. Click here.
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Can I rollover
my 401(k) plan directly into a ROTH IRA?
You must first rollover your 401(k) into
a traditional IRA. Once you've done this, you may convert your
traditional IRA to a ROTH IRA. The rollover from a 401(k) into
a ROTH IRA usually triggers tax-consequences since the taxation
of ROTH IRA withdrawals is more liberal than 401(k) withdrawals..
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Can I do a partial
401(k) rollover?
Part or all of the money in an employee's
qualified retirement plan can be rolled over into a traditional
IRA.
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If I rollover
my 401(k) to a traditional IRA, can I still participate in a
401(k) plan at my new job?
If you meet the eligibility requirements
of the 401(k) plan at your new job you can likely participate.
Having and maintaining an IRA should not disqualify you from
participating in a new 401(k) plan..
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What happens if
I decide to take a premature distribution from my 401(k)?
Generally, a 10% penalty applies to funds
withdrawn before age 59 ½ plus current income tax on
the distributed portion. Under certain circumstances, the 10%
penalty can be avoided if distributions follow the IRS guidelines
found in rule 72t. Contact one of our rollover specialists for
more info. Click here.
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Are earnings in
an IRA taxed?
One major benefit of an IRA is that growth
is not federally taxed until funds are actually withdrawn. This
process is sometimes referred to as "tax deferral"
and it allows for a more rapid build up of funds over the years.
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Can I own multiple
IRA accounts?
Yes. However, consolidating your IRA
accounts into one master account may simplify the management
of your retirement assets. Contact one of our rollover specialists
to learn more about the benefits of account consolidation. Click
here.
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Who should I name
as the beneficiary of my rollover IRA?
You may name a spouse, a family member,
or another party as beneficiary of your rollover IRA. Beneficiary
decisions are usually revocable and careful thought should be
given to the tax and distribution ramifications of your final
choice.
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Are there any
distribution requirements for my rollover IRA?
Yes. Traditional IRAs as well as other
qualified retirement plans are subject to mandatory required
minimum distributions (RMD) that must begin by April 1st of
the year after the year in which a participant reaches age 70
½. Not meeting the RMD or forgetting to distribute tax
qualified funds after age 70 ½ will generally result
in an IRS 50% excise tax. Our rollover specialists can help
you to determine your RMD.
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What other rules
apply to a 401(k) rollover?
1) The rollover must be made within 60
days of taking the distribution from a 401(k) or another qualified
plan. If the rollover doesn't happen, the entire distribution
becomes taxable. 2) If the distribution is paid first to the
employee before being rolled over, an amount of 20% must be
withheld. In order to rollover the entire distribution and avoid
current taxes, the employee will have to make up the 20% withholding
from his/her personal funds.
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