Employees approaching retirement have lots of questions. Sometimes they don’t even know…what they don’t know.
Retiring employees who supplemented their retirement by contributing to a 403(b) or 457(b) plan may not know what they can do with these funds. One option is a rollover, which allows for the movement of these funds from the current plan to an IRA or another retirement plan.
- For policyholder continuity, National Life Group will reclassify the annuities owned within a Employer-sponsored retirement plan to an Individual IRA. There is no need to start over with a new annuity.
This means the retiree keeps the same policy, history and benefits of their current annuity.
- The rollover into an IRA eliminates retirees’ requirement to obtain the Plan Administrator’s Signature for financial activities.
- The new IRA will no longer be subject to a 20% mandatory federal withholding on disbursements as there was within the plan. Withholdings will now be under the IRS rules for IRAs – 10% withholding unless electing out of withholding or choosing a different amount.*
- Retirees can consolidate all IRAs into one IRA to make it easier to manage and monitor.
- Retirees can continue to contribute to their IRA if still working subject to IRS income limitations.
- Retirees can opt for a subsequent rollover of the IRA into a 403(b) or another qualified account, if they qualify, with another employer.
- Retirees can recharacterize the IRA to Roth IRA if it works for their tax and future considerations.
Employees should talk with their tax advisor regarding this decision. Depending on their situation there may be benefits to leaving the money in the plan, or even taking a direct distribution.
Help your employees continue their financial fitness journey by sharing this article with those nearing retirement!
*Distributions taken prior to reaching age 59 1/2 may be subject to an additional 10% federal income tax penalty.
The companies of National Life Group® and their representatives do not offer tax or legal advice. Please encourage your clients to seek tax or legal advice from their appropriate professional advisor.
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