KNOW HOW TO TAKE YOUR LUMPS
In 2001 those who are about to retire or change jobs, or whose employer is terminating the company retirement plan, may be eligible to receive a "lump sum distribution" as defined in the Internal Revenue Code. Such a distribution may be substantial and may represent the cornerstone of their retirement security. So it is important for them to consider their options carefully before making a decision regarding distributions.
Basically, they are faced with two main options. Should they take their distribution and pay taxes now? Should they roll their distribution over into a rollover Individual Retirement Account (IRA)?
If they decide not to roll the distribution over into a traditional IRA rollover account, they will pay taxes in the year they receive the distribution and have the remainder to invest as they please. The main benefit of paying taxes on the distribution now is that they may be eligible for special tax treatment of ten-year averaging or capital gains treatment and pay a lower tax rate than usual on the distribution. Otherwise, the distribution will be taxed at their ordinary tax rate.
Their second option is to roll the distribution over into a traditional IRA rollover account. This alternative assures that assets will continue to achieve tax deferral and work to provide for their retirement. Under current IRS regulations, an individual need not begin receiving distributions from his/her traditional IRA until reaching age 70 1/2.
Here are some rollover facts to keep in mind when faced with this decision in 2002.
- Only 60 days are allowed from the receipt of a lump sum distribution to roll over all but your after-tax contributions.
- All pre-tax contributions and all earnings from the employer's qualified plan in the future may be rolled over.
- Regardless of whether it is deductible, it is still possible to make an annual $3,000 IRA contribution to a traditional IRA rollover account. However, mixing regular traditional IRA contributions with the rollover balance will prohibit rolling the distribution back into another employer's qualified plan in the future.
- With a contributory traditional IRA, only cash can be put in, but with a rollover traditional IRA, if non-cash assets are received as part of the distribution, they can be put in directly (e.g. employer stock).
- Distributions may be made from a traditional IRA rollover account at any time after age 59 1/2 free of penalty just like a contributory traditional IRA.
The traditional IRA rollover account provides an opportunity to continue building assets during working years while continuing to defer income tax until beginning to receive distributions. This continued growth could mean the difference between living simply and living well during "golden years." Of course, before deciding which strategy best meets set objectives, it is a good idea to consult financial and tax advisors.
Lynn Siewert is the Principal of Advanced Corporate Planning and Branch Manager of the Vancouver, Washington Office of Supervisory Jurisdiction, Licensed through First Allied Securities, Inc. Member NASD/SIPC.
NOTE:
ALL information contained in this site is for illustration purposes only, and by NO means should be considered individual tax or legal advice under any circumstances whatsoever!
Lynn R. Siewert AIMC
Pension Consultant | Branch Manager
CA Insurance License #00B00579
2005 E. Evergreen Blvd
Vancouver, WA 98661
Ph: 360-750-9626
Securities Offered Exclusively Through
First Allied Securities, Inc. Member NASD/
SIPC
All other products and services provided exclusively through Advanced Corporate Planning
This site is published for residents of the United States only. First Allied Securities' Financial Advisors may only conduct business with residents of the states for which they are properly registered.
Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the
United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local First Allied Securities office for information and availability.
© 2008 Advanced Corporate Planning
All rights reserved
In 2001 those who are about to retire or change jobs, or whose employer is terminating the company retirement plan, may be eligible to receive a "lump sum distribution" as defined in the Internal Revenue Code. Such a distribution may be substantial and may represent the cornerstone of their retirement security. So it is important for them to consider their options carefully before making a decision regarding distributions.
Basically, they are faced with two main options. Should they take their distribution and pay taxes now? Should they roll their distribution over into a rollover Individual Retirement Account (IRA)?
If they decide not to roll the distribution over into a traditional IRA rollover account, they will pay taxes in the year they receive the distribution and have the remainder to invest as they please. The main benefit of paying taxes on the distribution now is that they may be eligible for special tax treatment of ten-year averaging or capital gains treatment and pay a lower tax rate than usual on the distribution. Otherwise, the distribution will be taxed at their ordinary tax rate.
Their second option is to roll the distribution over into a traditional IRA rollover account. This alternative assures that assets will continue to achieve tax deferral and work to provide for their retirement. Under current IRS regulations, an individual need not begin receiving distributions from his/her traditional IRA until reaching age 70 1/2.
Here are some rollover facts to keep in mind when faced with this decision in 2002.
- Only 60 days are allowed from the receipt of a lump sum distribution to roll over all but your after-tax contributions.
- All pre-tax contributions and all earnings from the employer's qualified plan in the future may be rolled over.
- Regardless of whether it is deductible, it is still possible to make an annual $3,000 IRA contribution to a traditional IRA rollover account. However, mixing regular traditional IRA contributions with the rollover balance will prohibit rolling the distribution back into another employer's qualified plan in the future.
- With a contributory traditional IRA, only cash can be put in, but with a rollover traditional IRA, if non-cash assets are received as part of the distribution, they can be put in directly (e.g. employer stock).
- Distributions may be made from a traditional IRA rollover account at any time after age 59 1/2 free of penalty just like a contributory traditional IRA.
The traditional IRA rollover account provides an opportunity to continue building assets during working years while continuing to defer income tax until beginning to receive distributions. This continued growth could mean the difference between living simply and living well during "golden years." Of course, before deciding which strategy best meets set objectives, it is a good idea to consult financial and tax advisors.
Lynn Siewert is the Principal of Advanced Corporate Planning and Branch Manager of the Vancouver, Washington Office of Supervisory Jurisdiction, Licensed through First Allied Securities, Inc. Member NASD/SIPC.
Lynn R. Siewert AIMC
Pension Consultant | Branch Manager
CA Insurance License #00B00579
2005 E. Evergreen Blvd
Vancouver, WA 98661
Ph: 360-750-9626
Securities Offered Exclusively Through
First Allied Securities, Inc. Member NASD/
SIPC
All other products and services provided exclusively through Advanced Corporate Planning
| This site is published for residents of the United States only. First Allied Securities' Financial Advisors may only conduct business with residents of the states for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local First Allied Securities office for information and availability. |
All rights reserved