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Jim Lentini: Choices on how to protect your retirement assets

Posted: October 12, 2009 10:40 p.m.
Updated: October 13, 2009 4:55 a.m.
 
Many Americans will be making key decisions in the coming months on what to do with their retirement assets.

Some are retiring, some are switching jobs and others are dealing with being laid off during the current economic problems affecting most Americans today.

If you are part of this growing group, you will have several choices on how to handle the vested portion of your pension plan.

Roll assets into an IRA
For most individuals, this is the best option for continued growth of retirement assets.

Your money can continue to grow tax-deferred.

You usually can expand investment choices beyond those offered by your employer-sponsored plan and are no longer subject to the plan's rules or restrictions.

You also avoid possible withdrawal penalties and have the opportunity to combine multiple accounts.

In 2010, you will have the option of converting your assets to a Roth IRA without income limitations.

One drawback is, unlike a 401(k), you cannot borrow money from an IRA.

Changing jobs
If you change jobs, you can also move assets to a new plan if your new employer has a qualified plan.

That way, your accumulated assets remain tax-deferred.

This way, your assets are conveniently consolidated with one provider and you avoid withdrawal penalties. The drawback may be that the plan may not accept Roth accounts and other after-tax money.

Plan rules and restrictions will apply.

You also will be limited to the options provided by the plan.

Remain in the old plan
If you leave your money in the old employer's plan, your money continues to grow tax-deferred and you avoid possible withdrawal penalties.

But unlike an IRA rollover, your plan rules and restrictions still apply.

And if your balance is between $1,000 and $5,000, it might be rolled into an IRA selected by your former employer.

If your balance is $1,000 or less, your former employer may cash out the account.

Cash out the account
As tempting as this may seem, considering your circumstances and taking care of immediate needs, this could be a very costly option.

Unless you hold a Roth or other after-tax account, your distribution will be fully taxable and your employer must withhold 20 percent of the taxable portion of your distribution for federal income taxes.

State and local taxes may also apply, as well as a 10 percent early withdrawal penalty if you are under age 55 at the time you leave the company.

Roth account withdrawals remain tax-free if the account was established at least five years before and you have reached the age of 59 and a half.

Also, withdrawals due to disability or death are not penalized. As always, you need to discuss your situation, options and needs with your financial advisor.

Working together, you can make a plan that best fits your desires, needs and goals for your retirement planning and protecting those assets for future growth and income.

Jim Lentini is President of Lentini Insurance & Investments, Inc. His column reflects his own views and not necessarily those of The Signal.

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