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Don't jump the gun by taking a distribution of your 401(k) money before you look at all your options and make an informed decision. To summarize, you have the following options if you want to roll over your distribution:
IMPORTANT NOTE: See the section Roth IRA Conversions to learn about Roth IRA conversions that may be available to you even if you do not meet the criteria for a Roth IRA.
Distributions over Your Life Expectancy
Another way to avoid the 10% early withdrawal penalty tax on a distribution from a 401(k) plan upon leaving the company is to take the distribution over your life expectancy. You must take a series of substantially equal periodic payments at least once a year over your life expectancy or the joint lives of you and your beneficiary. Of course, you will pay ordinary income tax on the distributions you receive each year. The withdrawal schedule must continue at least five years, and at least until you reach age 59½. This option should only be considered when you really need the money or are close to retirement. Otherwise, you'll be depleting your retirement savings before retirement.
IMPORTANT NOTE: Not all 401(k) plans allow this type of distribution option. Check with your plan administrator.
SUGGESTION: Another way to avoid the 10% penalty tax is to directly roll over your 401(k) distribution to a traditional IRA and then take distributions over your life expectancy. Consider setting up more than one IRA and take distributions from only one of them to keep you from depleting all your retirement savings.
Securities and Investment Advisory Services are offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Insurance products are offered through LPL Financial or its licensed affiliates. Heartland Planning Associates is a trade name of Heartland Bank. Heartland Bank and Heartland Planning Associates are not a registered broker/dealers and are not affiliated with LPL Financial. The investment products sold through LPL Financial are not insured Heartland Bank deposits and are not FDIC insured. These products are not obligations of Heartland Bank and are not endorsed, recommended or guaranteed by Heartland Bank or any other government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. The LPL Financial representatives associated with this website may discuss and/or transact securities business only with residents of the following state: Ohio. Check the background of investment professionals associated with this site on FINRA's BrokerCheck.
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