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Changing jobs? Remember your retirement plan account

POSTED: September 16, 2008 5:00 a.m.

You’ve cleaned out your desk and said goodbye to your coworkers. Now you’re eager to start that new job you’ve accepted. But aren’t you forgetting something? What about the assets you have in your employer-sponsored retirement plan account?

If you’re changing jobs, you probably will have to make some choices about the funds which have accumulated in your plan account. Your decision about what to do with the money can have significant tax consequences. So, choose carefully.

Leave the money where it is
You may have the option of leaving the funds in your former employer’s plan where they will continue to grow tax deferred until you begin taking withdrawals at retirement.

Generally, you’ll still be able to direct how your money is invested (if you had that capability when employed), but you won’t be able to make additional contributions. If you have significant assets in the plan and are comfortable with the investment choices it offers, leaving your funds in your former employer’s plan may be a good idea.

Roll over the money
You can transfer the money in your former employer’s plan to an individual retirement account (IRA) or, possibly, to your new employer’s plan. You can do this without incurring tax liability or an early withdrawal penalty if you follow the rules.

In order for a rollover from your retirement plan account to remain tax deferred, you will have to deposit the entire amount in a new IRA or plan account within 60 days. If your former company’s plan administrator makes out a check to you for the vested balance in your account, he or she is required to withhold 20 percent for taxes. If you are unable to come up with the money to replace the withheld 20 percent, you might face a 10 percent early distribution penalty.

You can avoid both tax withholding and penalties by asking for a direct — or trustee-to-trustee — transfer of your retirement account balance to an IRA or new employer’s plan. With a direct rollover, the distribution check from your old retirement plan is made out to the trustee or custodian of your new account rather than to you.

Rules to remember
After-tax contributions to your employer’s plan, which formerly could not be rolled over to another plan now may be rolled over to another employer’s plan or an IRA.

To keep your transfer tax deferred, you must roll over the same assets that you had in your retirement account. For instance, if your old account held stock, you must roll over those shares to your new account. You can’t take out the shares, sell them and roll over the equivalent in cash nor can you roll over different shares of equal value.

You could, however, sell stock shares within the existing qualified plan or IRA and roll over or transfer all of the cash proceeds to the new qualified plan or IRA. This could happen if the new employer’s qualified plan does not accept those particular stocks.

Of course, you can always take a lump sum payout from your plan. However, not only would you owe taxes and possible penalties on the distribution, but you also would lose the future tax advantages of your retirement nest egg as well.

Your Country Insurance and Financial Services agent can help you sort through the various rollover options available and tailor a plan to meet your specific needs.

Investment management, retirement, trust and planning services provided by Country Trust Bank,  a part of Country Financial, Bloomington, Ill. Products of Country Trust Bank are not FDIC insured, not guaranteed and may lose value.

Mark Czachowski is the local Cotton States agent, an affiliate of Country Financial. 

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