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How to keep your retirement savings from a 20% tax penalty
While most of us are familiar with the benefits of staying invested in our employer’s 401(k) retirement plan, many investors are not sure what to do with the money they have accumulated in their plan if they leave their jobs or change employers. In fact, most people will change jobs at least once in their lifetime, so understanding how that change can affect your retirement savings is important. Please keep in mind that the money you have invested in your 401(k) retirement plan belongs to you. Your company can only keep the portion of the matching contributions that are not vested. Whenever your employment comes to an end, you have three options as to what you can do with your 401(k) money. So, before you take your plan distribution, please read the following information and consult your tax advisor, so that you can make an informed investment decision that will help you reach your financial and retirement savings goals. Cashing out can cost you money Although almost half of people changing jobs cash out their 401(k) plans, this option can cost you a lot of money. Cashing out your retirement account creates a taxable event. In addition to federal and state income taxes, you will also be required to p ay a 10% early withdrawal penalty if you are under age 59½. At that time, the IRS requires 20% of the amount you are entitled to receive be deducted and forwarded as federal tax withholding. Rollover your 401(k) into to an IRA The option financial planners recommend most often to people who are leaving their current jobs is to rollover their 401(k) distribution into an IRA. Please keep in mind that as long as you do not make any after-tax contributions into this IRA, you can rollover the account into your employer’s 401(k) plan in the future, provided this option is available with your new employer. You do not have to pay taxes and penalties with this type of transaction because the money is staying in a retirement vehicle. Rollover your 401(k) into another 401(k) plan As mentioned above, you may rollover your 401(k) distribution into your new employer’s 401(k) retirement plan. You will only be able to exercise this option if your new employer offers a 401(k) retirement plan (that allows rollovers) and if you are able to immediately transfer the money into the plan. Some plans will stipulate a specific waiting period until you become eligible to participate in the plan and rollover your prior 401(k) account. If you elect to rollover your account to your new employer’s plan, you will not have to pay taxes and penalties. Whether you rollover your 401(k) distribution into an IRA or into your new employer’s retirement savings plan, you will be able to continue the tax-deferred advantage of your investment and your retirement savings will continue to grow. You may qualify for a free lifetime IRA We want to help you protect your hardearned retirement savings. If you rollover $10,000 or more into a U.S. Global Investors IRA, you will never have to pay for your annual custodian fee for the entire life of your account! (Or, contribute $2,000 to an IRA and receive a one-time fee waiver.) Plan your retirement on-line Check out the new interactive Retirement/IRA section on our website at www.us-global.com. We have retirement planning worksheets and asset allocation tools to help you determine, step by step, how to reach your retirement goals. Or, you can always call an investor representative at 1-800-US-FUNDS. Let us help you get the most from your retirement savings! |
Five commonly suggested asset allocation portfolios are the following:
These examples are intended only as general guidelines and your actual portfolio should include individual factors, such as your specific risk tolerance, financial objectives, time horizon and tax bracket. |
