When it’s time to take a distribution from your employer-sponsored retirement plan, you have several options.
1. Leave the money in the plan. Depending on your employer’s retirement plan rules, you may be able to leave your savings in your employer’s plan until you reach age 70 1/2 or retire. Why choose this option? This makes sense if you have other sources of retirement income such as a taxable account or a working spouse, and you want to continue to obtain tax-deferred compounding interest on your investments.
2. Move your money to another tax-qualified retirement account. You can roll the money in your employer-sponsored retirement plan over to another retirement account, such as an IRA. This can be done as a direct rollover or by taking a cash distribution and depositing it in another tax-qualified retirement plan within 60 days. Why choose this option? This route works well if you have other sources of retirement income and want to continue to obtain tax-deferred compounding interest on your investments, but you are seeking more varied investment options.
3. Take a distribution. You can also receive a lump-sum payment or take distributions in installments. Why choose this option? You may simply want your money, or you may want to invest it in a taxable account. Remember, however, that you will have to pay income taxes on the money withdrawn, and if you are under age 59 1/2, you will have to pay an additional 10 percent penalty.
Whatever you choose, the tax regulations around distributions of retirement accounts are complex, so it is best to consult a financial professional.