Your choices of distribution of your retirement benefits generally include a lump-sum distribution, an annuity, or rollover to a traditional IRA or a new employer's qualified plan. Each of these distribution methods has different federal income tax requirements; an understanding of these will contribute to your decision of how to take your distribution.
You may want or need to take an early distribution of your retirement benefits, but you should be aware of the tax implications and possible penalties before you make this decision. Alternatively, you may want to defer your retirement plan distribution; you can do this for a time before minimum distribution requirements kick in.
If, after exploring these sections, you still have questions on the tax consequences of your distribution option choices, call your tax professional for assistance.
Some retirement plans offer only a lump-sum payout at retirement. In this case, is it better to pay taxes at distribution or defer taxes by rolling over the amount into a traditional IRA? A traditional IRA can serve as a place to continue the tax-deferred sheltering of money from your employer retirement plans. If you have your employer plan transfer the money directly into a traditional IRA, i.e., a direct rollover, no taxes are due until you begin to withdraw the money.
A lump-sum distribution is a distribution of all the money in your retirement plan in one large lump-sum. A payment qualifies as a lump-sum distribution if it meets the following requirements:
You will generally have three choices if you go this route: