Retirement Is Transition Time

Retirement comes with many transitions.  Transitioning from a work schedule to a non-work schedule, learning how to spend all your extra free time and most importantly how to turn your retirement investments into retirement income.

One of the most important financial decisions you have to make at retirement is determining how to have the money in your retirement accounts distributed.  You have 4 choices; the distribution method you choose can impact how long your money lasts.   To help yourself make a good financial decision, learn about all 4 options.

Choose Your Distribution Method

  • Leave Your Money Alone

You can leave your money in your retirement plan account at the company you are retiring from and take distributions from that account.

There is one caveat though, if your retirement plan balance is above $5000 you can keep your money in your employer’s retirement plan.  With balances under $5000, the IRS gives the employer the option of forcing you to roll your money out of the plan.   If forced into a rollover, you can always transfer that money into an Individual Retirement Account.

  • Lump Sum It

Be especially careful with this option; it could result in a big tax bill.  You receive your entire retirement account balance in one payment.

The advantage is that you have immediate control and access to your money.   You can invest this money or spend it; it’s your choice.

The disadvantage is that you have to pay income taxes on the entire balance all at one time.   Large retirement plan balances paid out in a lump sum payment could push you into a higher tax bracket.   You will owe taxes on the payout the year you receive the lump sum payment.

  • Once you retire, you have to decide how to have your money from your retirement accounts

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    Systematic Withdrawals Could Work

This is a more tax friendly distribution method.

You can set up an automatic withdrawal for a fixed amount or a percentage of your account value.  In either case, you are only taxed on the amount of the withdrawal.

  • Life-time Stream Of Income

You always have the option to create a guaranteed lifetime stream of income through an annuity.   The way you convert your retirement investments into a stream of income with an annuity is by annuitizing the account.

  • Roll It

You can rollover your employer retirement plan balances into one Individual Retirement Account and start distributions from there.   If you have a traditional Individual Retirement Account, you will be required to take minimum distributions starting at age 701/2.

Which Distribution Method Is Right For You?

Only you can decide which distribution method works for you based on your age, financial needs and financial goals.