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Investment basics
What you need to know if you’re changing jobs
- Three ways to keep your
retirement benefit working
- Keep in current employer’s plan
- Roll over to new plan
- Roll to IRA or annuity
Determining your investing style
What you need to know if you’re changing jobs
If you’re not ready to retire, the best thing you can do with your retirement
money is to protect its special tax-advantaged status and keep it working
for your future. The government provides tax advantages for retirement
plans like yours because it recognizes that Social Security alone won’t
be enough.
Take a look at the accompanying chart: Social Security provides less than half of the average worker's retirement income. So achieving your retirement dreams will depend a great deal on your personal savings and retirement plans.
If you take the cash, the IRS will claim their share too!
Although it may be tempting to use your retirement plan money to pay
some bills or make a down payment on a new car, there are compelling tax
reasons for leaving your money in some type of retirement plan.
If you "cash in" your retirement plan dollars now, you may have to pay:
- Federal income tax on the entire amount you receive.
- A 10% early withdrawal penalty if you are less than 59 1/2.
- State taxes.
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These taxes can take a big bite out of your retirement savings as the example here shows: Sally, age 35, is leaving her job with $10,000 in her retirement plan. Although she's tempted to take the money in cash and spend it, she decides to continue saving for retirement by leaving her $10,000 in her employer’s retirement plan. Steve, also age 35, elects to receive a $10,000 lump-sum payment payout from his retirement plan. Unlike Sally, however, Steve decides to put off saving for retirement. He takes the payout in cash and pays the taxes. |
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Sally has time on her side because she started early. Her original $10,000 has been growing for 30 years and now totals $100,600. Steve waits another 10 years before he starts saving again for retirement. He puts $2,000 a year into an IRA; 20 years later his account totals $91,524. So even though Steve set aside four times more than Sally, he received less money at retirement! |
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 This chart is hypothetical and used for illustrative purposes only. Rates of return will vary over time. Contributions allocated to variable investment choices can lose value and may be worth more or less than originally invested when redeemed. |
Three ways to keep your retirement benefit working
The options shown here are generally offered in most plans. For your specific
options, please call a Securian Plan Specialist at 1-800-421-3334. In addition, before making
any decision regarding your retirement money, consider talking with a
tax advisor so you learn how each option will affect your financial situation.
If you want to keep your money earmarked for retirement, you have three options:
- Keep it in your U of M plan.
- Roll it over to your new employer’s retirement plan.
- Roll it over directly to an Individual Retirement Account or Individual Retirement Annuity.*
1. Keep it in your U of M plan
| Where money is invested |
Keep in current plan |
| Effect on taxes | You avoid current taxes. You avoid the 20% withholding and 10% IRS penalty that might otherwise apply. |
| Key benefits | Option to transfer money to new plan or IRA in future.
|
| Next Steps | Notify Securian if your address changes. |
2. Roll it over to your new employer’s retirement plan
| Where money is invested |
Distribute directly to a new plan, if allowed. |
| Effect on taxes | You avoid current taxes. You avoid the 20% withholding and 10% IRS penalty that might otherwise apply. |
| Key benefits | Your money grows tax-deferred. |
| Next steps | Ask if your plan accepts rollovers. Ask about investment options and any restrictions of the plan. Complete a Securian withdrawal form. |
3. Roll it over directly to an Individual Retirement Account or Individual Retirement Annuity*
| Where money is invested |
Distribute directly to a financial institution of your choice. |
| Effect on taxes | You avoid current taxes. You avoid the 20% withholding and 10% IRS penalty that might otherwise apply. |
| Key benefits | Your money grows tax-deferred. Option to transfer to new employer's plan in future (if only comprised of qualified plan distribution plus income). |
| Next steps | For information on Securian’s annuity options call a Securian Plan Specialist at 1-800-421-3334. |
*Note: If you don’t have payouts rolled directly from your former plan to a new one when leaving your job, your employer is required to automatically withhold 20% of the benefit against federal income taxes due. This is similar to wage income tax withholding taken out of your paycheck. This law makes it more important than ever to review all of your options before you elect to receive a check for your full retirement benefit amount!