Who Said You Couldn’t Take it With You?


If you are thinking about changing jobs, are you aware what your choices are for managing the money in your current employer’s retirement plan? Although many people have chosen to take a cash distribution, there are several options that may benefit you more.

Uncle Sam Loves Cash Distributions

Taking a lump-sum cash distribution may cause an immediate 20% federal withholding tax. In addition, a 10% additional tax could apply if you are younger than age 59½. * Taking your money in cash also means that you’ll no longer enjoy the potential benefits of tax deferral that a qualified retirement plan provides.

Depending on your situation, you may have several options that will allow you to maintain the tax-deferred status of your retirement plan assets:

  • Leave the money in your former employer’s plan. Your previous employer must allow you to leave the money where it is as long as the balance exceeds $5,000. You cannot contribute further to the account, but you’ll still decide how the existing assets will be invested.
  • Roll over the money to your new employer’s plan. By “rolling” the assets directly to your new plan, you can duck the taxes that could eat away at a cash distribution. You’ll also only have one set of investments to monitor. Even if you’re not immediately eligible to contribute to the plan at your new job, you may still be able to roll over the money right away.
  • Roll over the money to an IRA. If your new employer doesn’t offer a retirement plan or you are not yet qualified to participate, you can move the money directly to a traditional IRA. Again, you’ll avoid taxes that you’d incur if you decided to take a cash distribution and still enjoy the potential benefits of tax deferral. Experts recommend against commingling your retirement plan assets with other IRAs you may have set up. Instead, open a separate IRA account, known as a “conduit IRA,” which could allow you to move the funds to a new employer’s retirement plan at a future date.

Research Your Options

If you plan to change jobs, don’t just take the money and split. Since rules vary from workplace to workplace, find the time to explore your alternatives. If you have any specific questions about your retirement plan distribution options, contact a CERTIFIED FINANCIAL PLANNER® at Wealthnest Planners.

Visit www.wealthnest.com or call our offices 480-699-5275.


Michael McGinley, CFP ®
Comprehensive Wealth Manager | Tax Advisor
Chandler, AZ 85226


Source/Disclaimer: *If you’re age 55 or older and separate from service, the 10% additional tax may not apply for certain periodic withdrawals taken from an employer-sponsored retirement plan. Keep in mind that the 10% additional tax may be incurred on distributions taken from an IRA prior to age 59½.


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