Military Officer - August 2006 - (Page 42)

financialforum The Rollover There are several issues you should consider before deciding to roll over or consolidate a retirement plan. Phil Dyer, CFP, explains how to weigh your options. M Early Distribution Can Be a Mistake ■ Nearly 50 percent of employees cash out their retirement plan when changing jobs, but this can be a costly mistake. These non-qualifying distributions are subject to a 10-percent early withdrawal tax and added to your ajusted gross income. ost military retirees will work for several employers after leaving active duty. This often results in the accumulation of assets in different qualiﬁed retirement plans — 401(k), 403(b), or 457(k) — as they move from employer to employer. When you change jobs, you typically have several options for this money: ■ Leave it with your current employer (employers may require small balances to be rolled over or distributed); ■ Roll it over to your new employer’s qualiﬁed plan (if the plan accepts assets from other plans); ■ Roll it to a self-directed IRA; or ■ Take a non-qualifying distribution (subject to signiﬁcant tax penalties). Many ﬁnancial service providers bombard retirees, near retirees, and job changers with a steady drumbeat of “Roll over and consolidate with us!” But does rolling over and consolidating your retirement assets always make sense? Let’s look at several factors to consider: ■ Fund availability: Funds rolled into an IRA typically are not available penaltyfree until the owner turns 591⁄ (there are 2 exceptions for extraordinary medical expenses, ﬁrst-time home buyers, certain college costs, and equal periodic payment plans). Money in qualiﬁed plans can be accessed penalty-free as early as age 55 in conjunction with retirement. ■ Fund safety: Until recently, funds in qualiﬁed plans were considered “safer” than IRA money, because of the Employee Retirement and Income Security Act. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 extended signiﬁcant additional protections to IRAs, essentially shielding unlimited amounts of rollover IRA money and up to $1 million of contributory and Roth IRA money from creditors. ■ Access/ease of management: Keeping up with three or four old qualiﬁed plans and their underlying investments can be a challenge. A big beneﬁt of consolidation — either to a self-directed IRA or to a new employer’s plan — is ease of management. ■ Fees/expenses: Compare the fees and expenses of the qualiﬁed plan with a proposed rollover solution. Some employer plans have low expenses and annual management fees, and others are quite expensive. Likewise, some rollover solutions are economical, and others are loaded with commissions or expensive management fees. The decision to roll over and consolidate should be made after weighing the issues noted above. If the employer you ultimately retire from is stable and has a low-cost plan using investments you are comfortable with, leaving it in place might be the best way to go. Just make sure you have all the facts before proceeding. MO — Former Army Capt. Phil Dyer, CFP®, is deputy director for ﬁnancial education, Beneﬁts Information. To ﬁnd a ﬁnancial planner near you, contact Garrett Planning Network at (866) MOAA-GPN (662-2476) or www.moaa .org/garrett, or visit www.moaa.org/ﬁnancial center for other resources. PHOTO: GREG SCHALER 42 MILITARY OFFICER AUGUST 2006 http://www.moaa.org/garrett http://www.moaa.org/garrett http://www.moaa.org/financialcenter http://www.moaa.org/financialcenter

Table of Contents Feed for the Digital Edition of Military Officer - August 2006

Military Officer - August 2006 Contents From the Editor President’s Page Your Views MOAA Directory Rapid Fire Washington Scene Chapter Activities Financial Forum Ask the Doctor Changing of the Guard Four-Star Rating Long Term Care Kryptogram Pages of History Information Exchange MOAA Scholarship Donors Member Books Advertising Index MOAA Calendar Sounding Taps MOAA Member Services Encore

Military Officer - August 2006

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