Potential Benefits of Rolling Over Assets to an IRA

When leaving a job or retiring, it may be more advantageous to roll over an eligible distribution from your former employer’s retirement plan to a traditional IRA (Individual Retirement Account) rather than leaving those assets in that plan. Consider the following advantages that a traditional IRA may offer:

More Investment Choices and Personalized Advice
Typically, an employer’s retirement plan, such as a 401(k), 403(b), or 457 plan, offers a limited number of investment options from which to choose. Rolling over your retirement plan assets to a traditional IRA could enable you to build a more diversified portfolio. A more diversified portfolio can utilize the strategy of asset allocation. This approach can help lessen your exposure to market fluctuations by compensating for potential losses in one area of your portfolio with possible gains in another. Working as a team, you and your financial advisor can determine the investment options for your traditional IRA that address your individual needs and goals.

Greater Control and Access to Your Funds
By having your retirement assets in a traditional IRA, you have the option of withdrawing money whenever you need it. Withdrawing money based upon your desired schedule is not necessarily the case with an employer-sponsored retirement plan. Your former employer may not process distributions on a daily basis. Instead processing could be done less frequently, such as each month or each quarter.

If you are younger than 59 1/2, generally withdrawals from your retirement plan are considered premature distributions and will be subject to a 10% penalty tax. Yet, a traditional IRA can provide a way for you to take penalty-free distributions, known as substantially equal periodic payments. Also referred to as 72(t) payments, it provides a way to meet cash-flow needs and may be taken from a traditional IRA at any age, for any reason. This distribution option may not be available in your former employer’s retirement plan.

Always keep in mind, however, that regardless of whether your distributions are subject to the 10% penalty, they are still subject to federal and possibly state income taxes.

More Flexibility in Making A Beneficiary Designation
A traditional IRA may provide for more sophisticated estate planning strategies. For example, you may wish to name a nonperson (such as a trust, charity or estate) as your beneficiary. This strategy can be used to reduce federal estate taxes and control the management of retirement assets after your death. An employer-sponsored retirement plan may not allow you to designate a nonperson as the beneficiary.

Potentially Longer Payout Period to a Nonspouse-Beneficiary
You may want to consider naming a child or grandchild as beneficiary rather than your spouse. Upon your death, your beneficiary can take distributions from the traditional IRA each year based on his/her own life expectancy. The younger the beneficiary is the longer the payout period will be. Although the law allows for distributions based on life expectancy, employer-sponsored retirement plans are not required to offer this option. Instead, the plan may limit the nonspouse-beneficiary’s choices to either a lump sum or payments over a shorter span of time, such as within five years. This can cause significant income tax issues for the beneficiary child particularly if he/she is in his/her prime earning years.

Neither UBS Financial Services Inc. nor any of its employees provide legal or tax advice. You must consult with your legal or tax advisors regarding your personal circumstances.

Gail Mariana is a Financial Advisor with the Baum Consulting Group of UBS Financial Services Inc. To discuss your unique circumstances and to determine together the most appropriate retirement solution for you, call The Baum Consulting Group at 412-288-4800.