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Financial Focus – Leave your job, leave your retirement plan?

By Don Chiodo

When you leave a job – whether due to layoff or for any reason – you are often faced with a decision about your 401(k) or other retirement plans.

If so, you may find yourself having to make a decision about whether to keep your 401(k) funds with your former employer, roll them over to an IRA, or pay the taxes and cash out. It is important that you understand the implications of each option.

Some employers offer the opportunity to maintain your retirement account at your former company. On the other hand, by rolling over your funds to an IRA, you can maintain control, manage the funds any way you want, and remain subject to IRA rules alone.

At your direction, your employer can transfer your distribution directly to another qualified plan or to a rollover IRA. A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it within 60 days to another eligible retirement plan. When you roll over a retirement plan distribution, you generally don’t have to pay tax on it until later when you take cash withdrawals.

Job changers should resist the temptation to spend down their retirement savings, whether they are moving to a new job or plan a hiatus from work. When you fail to roll over, you not only pay tax on the amount you receive, but you may, if you are under age 59-1/2, be subject to an additional 10% penalty on the early distribution you receive.

If you are simply moving your IRA from one institution to another and you do not plan to use the funds, you should consider making an IRA transfer and not a rollover. This is a simple direct transfer from IRA to IRA between financial institutions. Options for your retirement plan:Roll assets to an IRA;

Leave assets in your former employers plan;

Move assets to your new/existing employers plan;

or Cash out or take a lump sum distribution

This article was written by Wells Fargo Advisors and provided courtesy of Don Chiodo and Central Michigan Investment Services in Clare at 989-935-5000.

Investments in securities and insurance products are: NOT FDIC INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Central Michigan Investment Services is a separate entity from WFAFN.

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