AUGUST 2020 • LONGISLANDPRESS.COM 5
401(K) DECISIONS – YOU CAN TAKE IT WITH YOU
If you are preparing to change jobs, do you
know what your choices are for managing the
money in your current employer’s retirement
plan? Although many people choose to take
a cash distribution, there are other options
that may benefit you more.
Uncle Sam Loves Cash Distributions
Taking a lump-sum cash distribution may
trigger an immediate 20% federal withholding
tax. In addition, a 10% additional tax may apply
if you are younger than age 59½.1 Taking your
money as a cash withdrawal also means that
you’ll no longer enjoy the potential benefits
of tax deferral that a qualified retirement plan
offers. Depending on your circumstances, 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 former employer must
allow you to leave the money where it is as
long as the balance exceeds $5,000. You’ll no
longer be able to contribute to the account,
but you’ll still decide how the existing assets
are invested.
• Roll over the money to your new
employer’s plan. By “rolling” the money
directly to your new plan, you may avoid
the taxes that could eat away at a cash
distribution. You’ll also have only 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 aren’t yet eligible to participate,
you might roll over the money directly to a
traditional IRA.
Again, you might avoid taxes that you’d incur
if you took a cash distribution and still enjoy
the potential benefits of tax deferral. Experts
advise against commingling your retirement
plan assets with other IRAs you may have set
up. Instead, consider opening a separate IRA
account, known as a “conduit IRA,” which may
allow you to move the funds to a new employer’s
retirement plan at a later date.
Research Your Options
If you plan to change jobs, don’t just take
the money and run. Since rules vary from
company to company, find the time to explore
your alternatives. If you have specific questions
about your retirement plan distribution options,
contact your employer’s benefits coordinator
or a qualified financial consultant. For more
information, feel free to reach out to me via
email at Paul.Celentano@owmanagement.com
or by phone 516-634-1301
Paul Celentano, Wealth Management Advisor/
Portfolio Manager
Source/Disclaimer: 1 If you’re age 55 or older and separate from service, the 10% additional tax might 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. DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible
for any errors or omissions.
At OWM we strive to empower our clients with
dynamic and objective strategies that help
them build, enhance and importantly protect
their wealth. We work to get our clients to think
outside the box, set clear goals, and have realistic
expectations.
• Concentrated Equity Strategies
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• Tactical Portfolio Management
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Dynamic
Strategies,
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Advice
50 Merrick Rd. STE 202
Rockville Centre, NY 11570
516-634-1300 • www.owmanagement.com
Paul.Celentano@owmanagement.com
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