Planning Briefs
Roll Over And Play Dead To The IRS
Published Tuesday, March 25, 2014 at: 7:00 AM EDT
Suppose you’re getting ready to retire at your current job. At long last, you’ll be entitled to the funds you have been scrimping to save in your 401(k) or other employer plan all these years. But the big payoff on retirement day can come with a punch: A hefty income tax bill at rates now reaching as high as 39.6% on the federal level plus any state and local income taxes you may owe. A distribution also might trigger the new 3.8% Medicare surtax that applies to some high-income investors.
What’s a soon-to-be retiree to do? If you require all of the cash right away, you’ll have to take your lumps. However, if you don’t need the money, or at least you can do without much of it, the tax-smart approach is to roll over the funds into an IRA.
A “rollover” is pretty much what it sounds like. You simply take as much cash as you like from the 401(k) and deposit it in an IRA in your name. As long as the rollover is completed within 60 days of your retirement, the amount transferred is completely tax-free. Then you can withdraw the money as desired—it’s taxable at ordinary income rates in each year that you take a distribution—although you must begin minimum distributions no later than the year after the year in which you turn age 70½. In the meantime, the funds in the IRA have the opportunity to continue to grow and compound on a tax-deferred basis.
© 2024 Advisor Products Inc. All Rights Reserved.
More articles
- 5 Tasty Tips For A Spending Diet
- Is It Too Late For Roth Conversion?
- More Flexibility Allowed In Flex Spending Accounts
- Should You Turn Off A Trust?
- Crummey Gifts: Spring Into Action
- When Two Out Of Three Ain't Bad
- Here's A Fast And Easy Way You Can Supplement A Will
- Don't Chase After The Market News
- Results From Financial Calculators Don't Always Add Up
- Don't Expect Social Security To Be Enough To Retire On
- 'Tis The Season To Receive RMDs
- How To Avoid Bad Surprises In Roth IRAs
- Will You Have To Lower Your Sights In Retirement?
- 6 Bad Money Habits For You To Avoid
- Avoid Squabbling Over Your Estate