Avoid costly mistake if leaving your job
In today's weakened economy, even wealthy investors are not immune to the financial impact of losing a job. What you need to know to protect your retirement funds when leaving your employer:
Do an IRA rollover with your employer's retirement plan. If you take the money, you could be taxed up to 40 percent if you are younger than 59 1/2. And you will be even further behind in building a nest egg.
Take a direct rollover to avoid the 20 percent withholding rules. If you forget, you have only 60 days to replace the money with personal funds. You can then roll over the entire amount, avoiding taxes and possible penalties.
"Make sure you talk to your HR or employee benefit department about your rollover before transferring any money," said Beverly DeVeny, the IRA technical consultant at Ed Slott and Co.
Take into account plan loans. If you borrowed money from your 401(k) and there is an outstanding balance, pay it off and roll the entire balance. If you don't, the IRS will view the amount of the loan as a taxable distribution and you will owe taxes and possible penalties on that amount.
Get all the money to which you are entitled. Be sure any profit-sharing and matching has been credited to your account.
Open all your mail. I have clients who didn't and missed the rollover check. It is a real nuisance to have the check replaced. If you are not doing a trustee-to-trustee transfer, you only have 60 days to roll the money once it is sent. You don't want to have the money taxable because you didn't open up the envelope.
Mary Spurrier is president/principal of M Spurrier Financial Services LLC. Contact her at (585) 271-5280. This column is written by members of the Rochester Women's Network, whose focus is to help women connect, grow and succeed. For more information, go to www.rwn.org. |
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