Distributions From Retirement Plans What you need to know

Welcome Congratulations on taking this important step in understanding Retirement Plan Distributions. This decision will be one of the most important financial decisions you will make in your lifetime. The wrong move can be very costly to you and your future retirement plans.

Our Agenda Your Options Other Things to Think About Learning More Leave with your employer Take a full distribution Take a distribution but roll it to a new plan within 60 days Consider a direct transfer Other Things to Think About Learning More

Meet Matt and Kati Matt: Age 53 Kati: Age 49 Matt has recently left his company. Matt had $500,000 in his 401(k) Plan

Their Options Leave the money with Matt’s former employer Distribute the $500,000 from the plan Distribute the $500,000 from the plan, but roll it into another plan or IRA within 60 days Directly Transfer the $500,000 into another plan or IRA

Leave the Money in The Plan Advantages: Simple – Nothing has to be done Retain the same investment options The money stays tax deferred If Matt is over age 55 and separated from service, he can access the money without incurring a 10% penalty The plan may have lower fees and expenses than the new arrangement In general plan assets are protected from creditors

Leave the Money in The Plan Disadvantages Matt can not longer contribute to the plan The plan services may be limited for a former employee Matt may no longer be able to take loans from the plan Another arrangement may have more attractive investment options The plan may have limited distribution options 64% of individuals rolling assets over from their former employer said they did so because they did not want to leave assets with a former employer.* * ICI Research Perspective, January 2017, Vol. 23, No. 1, prepared by Sarah Holden, Senior Director of Retirement and Investor Research, and Daniel Schrass, Associate Economist

Distribute the Money From the Plan Matt and Kati are really excited. They feel they have hit the lottery. They can buy all kinds of things with $500,000!

Distribute the Money From the Plan Advantages: Matt and Kati get the money and can spend it anyway they like If Matt had been born before January 1, 1936 he could have taken advantage of 10 year forward averaging Any employer stock in the plan would have been eligible for Net Unrealized Appreciation Treatment

Distribute the Money From the Plan Disadvantages: Taxes will have a significant impact on the distribution Automatically 20% is withheld from the distribution as an advance of the ultimate tax bill At tax time, the balance of taxes must be paid on the distribution The amount of the distribution may put Matt and Kati in a higher tax bracket In addition to taxes, if an exception does not apply, there is another 10% (Pre 59 ½) penalty on the distribution The money loses its tax deferred status At tax time, is there the money to pay the remaining taxes?

Distribute the Money From the Plan The Math: Amount of Distribution $500,000 Minus 20% Withholding $100,000 Minus Additional Taxes Due $65,000 Minus 10% Penalty $50,000 Balance: $285,000 Assume a combined Federal and State tax bracket of 33%

Distribute the Money From the Plan

Distribute and Rollover within 60 Days Advantages: Take time to decide where to rollover the money For 60 days Matt and Kati have use of the money May take some money and rollover some money

Distribute and Rollover within 60 Days Disadvantages Regardless of your intentions, 20% is withheld from the distribution The rollover to the new plan must be made within 60 days- if the 60 day limit is missed, the entire distribution is a taxable distribution To be 100% whole, Matt must make up the 20% withholding and invest it within the 60 days – he can file to get it back at tax time If he does not have the 20%, it becomes a taxable distribution Many plans will not allow a 60 day rollover

Distribute and Rollover within 60 Days The Math: Amount of Distribution to Roll in 60 Days $500,000 Minus 20% Withholding $100,000 Amount Available for Rollover: $400,000 Scenario 1: Matt Makes Up the $100,000 Scenario 2: Matt does not Make up the $100,000 Amount Rolled Over Within 60 Days: $400,000 $100,000 Becomes a Taxable Distribution $100,000 Taxes Due $33,000 10% Penalty $10,000 Distributed Amount After Taxes: $57,000 Add $100,000 $100,000 Amount Rolled Over Within 60 Days $500,000 Assume combined Federal and State Tax Bracket of 33%

Consider a Direct Transfer Advantages Matt and Kati’s money continues to grow tax deferred The transfer avoids taxes The new arrangement may offer more investment options The IRA assets are generally protected from creditors A new employer plan may accept the assets

Consider a Direct Transfer Disadvantages If the new arrangement is an IRA, IRAs do not allow loans If an IRA, there is no age 55 and separated from service exception to the 10% penalty If the new arrangement is an IRA, it will be subject to Required Minimum Distributions at age 70 1/2. If the new arrangement is another employer plan, not all plans accept transfers from a former plan

Consider a Direct Transfer The Math $500,000 Old Plan $500,000 New Arrangement

Other Things to Consider IRA or New Plan Retirement Planning Life Insurance Health Insurance Long Term Care

Consider IRA or New Plan Will the new employer plan take former plan assets? What are the available investment options Does the IRA or plan offer any important plan features – long term care riders, death benefits, loans from the plan What are the fees associated with the plan or IRA Administrative, Asset Management What type of client service support is available

Retirement Planning What is your life stage? Have you set a retirement date yet? Will retirement change your lifestyle? Have you projected your post retirement income? Are your retirement assets all performing as they should? Are your assets congruent with your risk tolerance

Life Insurance Was employer life insurance lost? What is the insurance need? When was the last time your life insurance portfolio was reviewed? Have there been lifestyle changes since then?

Health Insurance and Long Term Care A health crisis or long term care situation can destroy a retirement plan. Is there a need for life insurance Understanding COBRA costs Does Long Term Care make sense and if so as a rider or stand alone policy

Learning More Mistakes are costly Understand your Options Let us help you!

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