Planning Ahead for Retirement

Transferring Your Retirement Savings?

When moving around your retirement savings, it is always best to have a plan. There are several options available to you when changing a job or just changing your retirement plan. 

  • Lump sum withdraws from your 401(k) from your old employer. Generally, this option is not advisable unless, in dire need of cash, as it can considerably reduce your retirement savings. Also, this could end up boosting you up into a higher tax bracket. Either way, you’ll end up paying more taxes.
  • Leave the money in your old employer’s 401(k) plan. Generally, once you reach retirement age, your former employer may require you to withdraw the balance. The balance may also be left in the old plan temporarily while you look into new plans and find the right one for you. Unfortunately this not always an option. If your vested balance is $5,000 or less, your old employer may require you to take it out upon leaving the company.
  • You can choose to have your balance transferred directly to your new plan, if allowed, through your financial institution. This is generally the best decision as the savings go on without any disruption or withholdings.
  • Another option, within the transfer option, is to have a check made out to you for the amount and then to deposit the check into your new employer’s plan or an alternate IRA. When using this option, you should be aware of the implications that come along with it, primarily the 60 day window that you must transfer the deposit within. Not doing so can have hefty tax consequences. The full amount will be taxable and if you are under the age of 59 and a half then you will be subject to a 10% penalty. Generally, taxpayers do not knowingly miss the 60 day window and have unwillingly faced financial burdens as a result. Because of this the IRS has cut taxpayers a break and provided a set of rules designed to offer relief from penalties. 

Basic Qualifying Factors:

  • An error was committed by the financial institution receiving the contribution or
  • making the distribution to which the contribution relates;
  • The distribution, having been made in the form of a check, was misplaced and
  • never cashed;
  • The distribution was deposited into and remained in an account that the
  • taxpayer mistakenly thought was an eligible retirement plan;
  • The taxpayer’s principal residence was severely damaged;
  • A member of the taxpayer’s family died;
  • The taxpayer or a member of the taxpayer’s family was seriously ill;
  • The taxpayer was incarcerated;
  • Restrictions were imposed by a foreign country;
  • A  postal error occurred;

Myriad options exist when rolling your retirement plan assets, including utilizing these new rules in the event an inadvertent violation of the 60-day rollover provision occurs. 

Contact your William Vaughan Company advisor for more information and to discuss these rules in depth. 

- Matthew J. Babcock, Staff Accountant

Categories: Audit & Accounting, Other Resources