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Reviewing Your Options for a Retirement Plan Distribution
If you are changing jobs, retiring or being terminated from a job, it is natural to undergo stress and anxiety. Usually, these changes are also accompanied by receiving a distribution from your employer's retirement plan. There are three important decisions that must be made about these distributions.
If you have been a participant in a plan for a long time and have accumulated a large sum of money, these decisions can have a very large impact on your financial future and that of your family. Considering the decisions carefully is critical.
Check with your human resources or payroll department to learn what your options are and get professional help if you need it.
Pay taxes or not
If you don't need the money immediately, it is usually advisable to maintain the tax deferral status.
Where to keep your funds
Even if you are currently unsure of your long-term plans, you may want to have the funds transferred into an IRA. You can always make withdrawals later if you choose.
Investing your funds
Be sure to consider your time horizon and risk tolerance when making your investment decisions. If you transfer your distribution to your new employer's retirement plan, consider the investment options and choose appropriately. If you go the self-directed IRA route, most institutions offer accounts that enable you to choose stocks, bonds, mutual funds, money market funds and other investments.
Don't feel that you have to make all the investment decisions immediately. As long as the funds are within another qualified plan or IRA, there should be no taxes due and you can make informed and careful investment choices.