Source: Sherman Publications

Raymond James: A column by James Kruzan
Don’t let your 401(k) slip away

March 30, 2011

Today’s job market is more transitory than ever. And, as more and more individuals switch jobs, they begin to wonder what they should do with the money they’ve accumulated in their employer-sponsored retirement plans.

The good news for 401(k) plan participants is that your retirement plan assets are very portable so you may be able to keep your existing 401(k) plan assets in a tax-deferred environment.

The trick is to resist the urge to use the monies. A hasty withdrawal decision by someone under age 55 could easily wipe out a third of your 401(k) assets. If you decide you want a lump-sum withdrawal paid directly to you, the 401(k) plan trustee must withhold 20% for federal income tax and, if you do not attain age 55 prior to the end of the year in which you separate from service, the trustee must also withhold an additional 10% premature distribution penalty.

After age 55, however, the premature distribution penalty is no longer imposed if your withdrawal is prompted by your separation from service with the employer sponsoring the plan.

Of course, if you choose to take a withdrawal, you may, within 60 days of the distribution, subsequently decide to deposit it into an IRA as a qualified rollover. However, for the withdrawal and re-contribution to be a tax neutral event, you would need to deposit the gross distribution amount into the IRA, which means you need to replace the withheld monies with funds from another resource such as your personal savings.

To be in the best position to make an informed decision, you should consider other options available for your existing 401(k) assets, such as:

• Leave your assets in the 401(k) plan if possible

• Transfer your assets to a new employer’s 401(k) or retirement plan

• Roll your assets into an IRA

Your 401(k) plan account balance represents your savings; therefore, it is important to make informed distribution decisions that will preserve your hard-earned money. To learn more about the portability of your 401(k) assets, or for more information on preserving your 401(k) assets and 401(k) retirement planning strategies based on your particular situation, contact your Financial Advisor.

This material was prepared by Raymond James for use by James B. Kruzan, CFP®, CRPC® of Raymond James Financial Services, Inc. Member FINRA/SIPC.