Navigating Change: Retirement Plan Transition Options
Q3, 2024
If your employer decides to discontinue or terminate your retirement plan, you separate from service, or are ready to retire, you have several transition options regarding your retirement account.
LEAVE THE MONEY IN THE PLAN: You may have the option to leave your funds in the existing plan. While you cannot make future employee contributions, your existing investments and earnings will remain tax-deferred until withdrawal.
ROLL OVER TO AN IRA (INDIVIDUAL RETIREMENT ACCOUNT): You can roll the funds into an IRA. This allows you to maintain the tax-deferred status of your retirement savings. IRAs often offer a more comprehensive range of investment options than an employer retirement plan, giving you more control over your investments.
ROLL OVER TO A NEW EMPLOYER'S PLAN: You may be able to roll over the funds from your previous plan into your new employer's plan. This option allows you to consolidate your retirement savings. You can still move your money to an IRA if you determine the benefits of investing in an IRA are better than investing the funds in your new employer’s plan.
CONVERT TO A ROTH IRA: If your employer plan offers a Roth option and your plan allows it, you may be able to convert your traditional retirement funds to a Roth IRA. This option will enable you to pay taxes on the converted amount now and enjoy tax-free withdrawals in retirement.
TAKE A LUMP-SUM DISTRIBUTION: You can choose to cash out your retirement account balance. However, this option is generally not recommended because it may result in significant tax consequences. You will owe income taxes on the entire distribution, and if you are under age 59 ½, you may also be subject to a 10% early withdrawal penalty.
Below is a quick reference chart outlining options based on events.
It's essential to carefully consider your options and consult a financial advisor to determine the best course of action based on your financial situation, retirement goals, and tax implications.
| Leave the Money in the Plan | Roll Over to an IRA | Roll Over to a New Employer's Plan | Convert to a Roth IRA | Take a Lump-Sum Distribution | |
|---|---|---|---|---|---|
| Plan Discontinuation | ✓ | ||||
| Plan Termination | ✓ | ✓ | |||
| Service Separation | ✓* | ✓ | ✓ | ✓ | ✓ |
| Retirement | ✓* | ✓ | ✓ | ✓ |
Midland Wealth Management is a trade name used by Midland States Bank, Midland Trust Company, and Midland Wealth Advisors, LLC, a registered investment adviser. Investment Products are: Not FDIC Insured | May Lose Value | No Bank Guarantee
Midland Wealth Management does not provide tax or legal advice. Please consult your tax or legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.
Please call Midland Retirement Plan Services at (815) 231-2816 to speak to your retirement specialist or e-mail us at retirement@midlandsb.com.
Our team of dedicated professionals are here to support you.
