Leave your money in your previous employer’s retirement plan.
Keeping your money in your previous employer’s retirement plan will help you maintain the tax-deferred benefits of your retirement savings, but you may have less control of your investment choices and may not be able to borrow money from your plan. However, by leaving it in your previous employer’s retirement plan, your account balance may be afforded certain protections from creditors that do not apply to Rollover IRAs or taking a cash-lump-sum distribution. If you decide to take a lump sum distribution from your retirement plan, are under the age of 59 ½, and you fall within the 28% tax bracket, here’s what will happen to your savings balance:
Original Account Balance: $30,000
20% immediate Federal Tax Withholding - $6,000
8% Additional Federal Taxes Due at Filing - $2,400
10% IRS Early Withdrawal Penalty - $3,000
What’s left … $18,600
Not including any additional state penalties or state and local taxes you may have to pay, it would cost you $11,400 to take all your cash out of your prior plan! If you leave it in your previous plan or roll over your $30,000 you get to avoid paying all those taxes or penalties.
If you choose to leave your account balance in your previous employer’s retirement plan, you may roll it over into a Rollover IRA or take a cash-lump-sum distribution in the future.
Transamerica Retirement Solutions and its representatives cannot give ERISA, tax, or legal advice. This material is provided for informational purposes only based on our understanding of material provided and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must consult and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing this material and presenting it accurately, Transamerica Retirement Solutions disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.