Dear Dr. Don,
I will be retiring next year at age 55. I have a
The plan does get to decide whether it will offer periodic distributions out of the account or require a lump-sum distribution. The following is from the IRS article, ”
There are multiple provisions in IRS Code
Depending on the terms of the plan, distributions have two types.
|2 distribution types|
Because you are separating from service at age 55 or older, you will be eligible to take money from your
You can get around the withholding issue by doing a direct transfer to an IRA rollover. If you do the rollover, you lose the “separation from service” exemption from the penalty tax.
But by giving up that exemption, you gain the
Starting in the 2008 tax year, you also have the option to
directly into a Roth IRA account. There are eligibility and other issues. IRS Publication 590, ”
Individual Retirement Arrangements,” has more including:
Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. See Converting From Any Traditional IRA Into a Roth IRA in Chapter 1 of Publication 590. Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan.
You haven’t indicated that any portion of your account is in company stock, but if this is the case, it complicates the situation. An IRA rollover in this case may eliminate the valuable net unrealized appreciation rule, which can provide significant tax savings in some situations.
If you do have company stock, be sure to consult with your tax adviser before taking any withdrawals from the
Thanks to David Littell, professor of taxation and the Joseph Boettner research chair at The American College in Bryn Mawr, Pa., for his assistance in answering this reader’s question.
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