What your 401(k) provider may not disclose to you

Usually when an employee terminates employment, he or she will receive correspondence from their 401(k) provider pertaining to their distribution choice/options. This information though is sometimes bias in nature soliciting that you roll over your 401(k) into one of their proprietary Rollover IRAs not emphasizing the other options available to you.

Although there may be nothing wrong with rolling over your 401(k) to that provider, again doing your homework is very important. Questions you should ask:

  • Who will be the custodian of your Rollover IRA?
  • Will you have a personal financial advisor or be just another number calling an 800 number?
  • Will you be provided with periodic advice?
  • Who will be servicing and reviewing your retirement savings?
  • How often will your account be reviewed?
  • What services are available?
  • What are your investment options?
  • What are the fees and charges?

 

If you are under age 59 ½, a 10% premature penalty may be assessed on all distributions you receive. Waiver of the 10% premature penalty may apply in some specific circumstances. Employees should consult their tax advisor pertaining to their particular situation.

By taking substantially equal periodic payments, you avoid incurring the 10% premature distribution penalty. The substantially equal distribution schedule selected must continue for at least 5-years or until you reach age 59 ½, whichever is longer, or you will be subject to a 10% premature distribution penalty on all payouts already received. Further details with respect to substantially equal periodic payment formulas are provided in IRS Notice 89-25.

All distributions from your retirement account are taxable in the year received. Please note, that at age 70 ½, you must begin taking minimum distributions from your retirement plan.

Distributions for any of the above reasons involve specific tax regulations and options. Please consult your tax advisor before requesting the distribution. This information does not constitute tax advice. FSC Securities Corporation and/or its representatives do not provide tax advice. Please consult your tax advisor pertaining to your particular situation.

Information and opinions expressed are strictly those of the author and may not be those of FSC Securities Corporation.