When changing retirement plans, choose the right option.
The following tables summarize the points to consider when changing your retirement plan.
Leave your earnings in the plan |
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Tax Impact |
Pros |
Cons |
Consider this option if you... |
Steps Needed |
| None | Savings keep growing tax-deferred.
No 10% penalty tax for early withdrawal. |
Limited investment options.
Access to your savings is controlled by the plan. You may have to leave the plan when you change jobs. |
Don't need your savings for current expenses.
Want to avoid current income taxes and penalties. Are satisfied with your current plan. |
None necessary. |
Withdraw your savings in a lump sum |
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Tax Impact |
Pros |
Cons |
Consider this option if you... |
Steps Needed |
| Withdrawal will be subject to income taxes and in some cases to the 10% penalty tax for withdrawals before age 591/2. | Savings (reduced by taxes and penalties) will be available for current needs. | Savings no longer grow tax-deferred.
You may be subject to 20% withholding. You may owe a 10% penalty tax for early withdrawals. You cannot move your savings to another qualified plan later. |
Need savings for immediate expenses.
Can take advantage of forward averaging to spread tax liability over subsequent years. |
Complete employer's form that authorizes a distribution and return the completed forms to your employer. |
*Roll your savings to a traditional IRA* |
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Tax Impact |
Pros |
Cons |
Consider this option if you... |
Steps Needed |
| None | No 20% withholding tax.
No 10% penalty tax for early withdrawals. Savings keep growing tax-deferred. Flexible investment options. You can move savings to a future employer's plan. |
Distributions from IRAs are not eligible for forward averaging.
Loans are not available from IRAs. |
Don't need savings for immediate expenses.
Want to avoid current income taxes and penalties. Want more investment choices. Want to consolidate your retirement savings at a single company. |
Fill out your employer's rollover authorization form.
Fill out the rollover IRA application and return it to Thornburg Investment Management with your check. |
| *A direct rollover- for some people this may be the best option. A direct rollover into a traditional IRA is the best distribution option for most people who leave their employer-sponsored retirement plans. A direct rollover also helps you avoid taxes and penalties. |
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Move your savings to your new employer's plan |
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Tax Impact |
Pros |
Cons |
Consider this option if you... |
Steps Needed |
| None | Savings keep growing tax-deferred.
No 10% penalty tax for early withdrawals. You may be able to borrow against savings. |
Investment options are limited to those in your new employer's plan.
Withdrawals and distributions are restricted by the new plan's policies |
Don't need your savings for current expenses.
Want to avoid current income taxes and penalties. Know that your new employer's plan meets your needs. |
Fill out and return your former employer's forms that authorize a direct rollover to the new plan.
Complete a rollover application for your new employer's plan. |
Note: The 10% penalty tax generally applies to withdraws before age 591/2, but certain exceptions apply, such as death, disability and unemployment. If you leave your employer in the year you reach 55 or later, distributions from your employer-sponsored qualified retirement plan will be exempt from the 10% penalty. A retirement specialist can help you determine whether the penalty applies to your situation. Please consult a tax advisor for more information on which option is most beneficial to you.
