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Retirement Distribution Planning

May 09, 2023

Retirement Distribution Planning:

When deciding what to do with your funds, you generally have four options or may engage in a combination of these options:

■ Roll over your plan assets into an IRA.

■ Keep your savings in your former employer’s plan, if allowed.

■ Transfer your assets into your new employer’s plan, if allowed.

■ Take a lump-sum distribution.

  1. Main Distribution Methods:

There are several methods for distributing retirement funds, including staying put and making no changes, taking a lump-sum distribution, setting up systematic withdrawals, or annuitizing your account balance. Each method has its advantages and disadvantages, so it is important to consider your options carefully.

  1. Consider Rolling Your Funds into an IRA:

Rolling over your retirement funds into an IRA can offer several advantages, including continued tax deferral, more investment options, and the ability to consolidate funds from multiple accounts. However, be sure to follow the rules for rollovers carefully, including the 60-day rule and the limit of one rollover per year (unless done as a direct transfer).

Keep in mind:

■ Internal management fees are generally higher than in an employer sponsored retirement plan.

■ Fees and expenses depend largely on the investments you choose.

■ Loans from an IRA are not allowed.

■ Early distributions may be subject to 10% IRS tax penalty in addition to income tax. Withdrawals of taxable amounts will be subject to ordinary income tax and, if made prior to age 59½, may be subject to a 10% IRS tax penalty.

  1. Required Minimum Distributions:

At age 73, you will be required to take minimum distributions from your retirement accounts. It is important to plan for these distributions, as they can significantly impact your taxes and overall retirement income.

  1. ROTH IRA and ROTH IRA Conversions:

ROTH IRAs offer several advantages, including tax-free growth and withdrawals. Consider converting some or all your traditional IRA funds to a ROTH IRA to take advantage of these benefits.

Distributions of Roth IRA earnings are tax-free, as long as the Roth IRA has been open for more than five years and you are at least age 59 1/2, or as a result of your death, disability or using the first-time homebuyer exception. It bears repeating, distributions may be subject to a 10% additional tax if taken prior to age 59 1/2.

  1. Retirement Investment Strategies:

When deciding which assets to liquidate first in retirement, consider pursuing a strategy that balances growth and income. This can help to maximize your retirement income while also preserving your assets for the long-term.