1. Distributions From Retirement Plans
What you need to know

2. 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.

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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!

9. 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

10. 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?

11. 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%

12. Distribute the Money From the Plan

13. 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

14. 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

15. 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%

16. 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

17. 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

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

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

20. 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

21. 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

22. 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?

23. 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

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

25. Thank You!