When you leave your employer, you have several choices to make with your retirement plan. You can take a cash distribution of your retirement savings. But if you do so, you will generally have to pay taxes on the distribution and a possible 10% premature distribution penalty tax if the distribution is taken before you turn 59½, or leave your current employer prior to turning age 55.
The contributions in your retirement plan have been protected from current taxes and the earnings have been tax-deferred. Or, if you have made Roth type deferrals you have paid income tax on the contributions. However, qualifying Roth distributions are tax-free. One of the best things you can do is protect your plan’s tax status and let it continue to grow for your future financial security.
If you decide to keep your money working in a tax-advantaged account for your retirement, there are generally three ways to do so. You can:
Each choice has potential benefits, as well as issues you’ll need to consider before making any decisions.
Your RBC Wealth Management financial advisor can help you understand your options and recommend strategies in keeping with your goals. Additional benefits of working with an RBC financial advisor include:
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Withdrawing 401(k) assets before retirement age can be costly. Avoid paying income taxes and a potential IRS penalty on your savings with a direct rollover that also gives you more control over your retirement assets.
Establish a tax-advantaged retirement plan for you and your employees.