Planning your Rollover

If you are getting ready to retire or sell your business, it is possible that you have accumulated some savings in a company retirement plan. This does not sound like an issue, but withdrawals from such a plan can come with a significant tax bill. In order to avoid this issue, you should consider a rollover into an IRA.

The benefit to converting your savings into an IRA is that you will not have to withdraw the lump sum immediately, which postpones your taxes, and that your savings will continue to grow free of tax. As long as you make the rollover before the 60-day cutoff, you will set yourself up for a financially healthy retirement.

There are some other factors you must consider before making this decision, as taxes are sometimes unavoidable. For example, if you receive annuity payouts during retirement, these cannot be rolled-over free of tax. Additionally, a qualified retirement plan payout will be taxed at 20% immediately, even if you intend to roll-over the savings. Finally, it is important to remember that leaving a company before age 55 may result in extra tax due to early withdrawal of a retirement plan.

As this article suggests, it is often optimal to use an IRA rollover, but each situation is different. Make sure you are aware of the details of your retirement payouts before deciding how to manage them.