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Employer-sponsored plans, such as 401(k), 403(b) or 457 plans, make it easy for you to invest and get the benefit of a tax-deferred¹ account as you plan for retirement. When you change jobs or reetire, it's important to know what to do with that money.
You have three options for keeping your money invested. The one you choose could make a difference for your financial future. Check with your employer to see if these options are available before you reach retirement age under your plan.
Your money will move from your former employer's plan to a rollover IRA.1 You can transfer your money into a new employer's plan later if the plan allows.
Putting your retirement plan money into an IRA means your earnings can grow tax deferred until withdrawn. With an IRA, you usually have access to a variety of investments, rather than the few choices offered in the typical employer plan, giving you more control over your money. You typically can change your investments whenever you like. You can add to your new IRA with after-tax contributions or with subsequent rollovers.
You can complete a rollover directly by having your assets sent to American Century Investments. In this case, 100% of your lan money can be transferred and we'll do all the paperwork.
Your new employer may allow you to roll over money from your former employer's plan. Your new employer may have a waiting period before you can complete the rollover or make contributions.
You can roll over after-tax contributions from your former employer's plan to your new employer's plan, if the new plan allows. Rolling over money to your new employer's plan also allows it to grow tax deferred.
If the vested account balance in your account is more than $5,000, you may be able to leave it in the plan. Your money still has the opportunity to grow tax deferred until withdrawn, although you can't make more contributions to that plan. You also may be able to obtain a loan from your account, which you cannot do with an IRA. Contact your former employer for details.
You may want to consider whether that retirement plan gives you flexibility, such as changing your investments or withdrawing money for special needs, or whether another option would be better for you. In addition, you should carefully review the types of investment options available to you.
Receiving your retirement distribution in cash provides the quickest access to your money, but it may not be the best long-term financial move. Remember these important tax considerations:
The entire cash distribution is treated as ordinary income. That means the 20% federal withholding may not be your only tax obligation. You may incur additional federal, state and local taxes. Assuming a cash distribution of $100,000, the chart below shows that more than 38% of your retirement distribution could be consumed by taxes and penalties, depending on your income.2 Plus, you lose the opportunity for your investment to continue to grow in a tax-deferred account.
Make sure you understand your options for your retirement plan account before you change jobs or retire. The choices you make can have major consequences for your retirement goals. Contact an American Century Investments® Rollover Specialist and learn more.
1 Call 1-888-345-2431 to speak with one of our Rollover Specialists for details and additional steps needed if you are considering an indirect Rollover.
2 Taxes are deferred until withdrawal. State and local income taxes also apply at withdrawal. A 10% penalty will be imposed for early withdrawal. This hypothetical information is for illustrative purposes only and is not intended to represent any particular investment product. Source: American Century Investments.