Retirement Plan Review

Your retirement plan savings (that is, qualified plans and IRAs) are important to your financial well-being for several reasons. Right now, you can accumulate income without currently paying tax, and the power of compounding pretax dollars makes a retirement plan one of the most powerful investment vehicles available. When you reach retirement age, the assets in your retirement plan(s) may be a significant portion of your overall savings. Therefore, it is important that you do everything you can to get the most out of one of the best investment opportunities you have. So, listed below is information to consider when conducting a review of your retirement plans.

Generally, when you begin to withdraw funds from your retirement plans, you will be subject to tax on the distributions. If you made after-tax contributions to your plan, a portion of each distribution will be tax-free. Also, special rules apply to Roth IRAs. If distributions begin prematurely (before age 59 1/2) you may be hit with a 10% penalty tax, but exceptions are available.

When you reach age 70 1/2 (or in some cases, retire) you must start withdrawing a minimum amount from your traditional IRAs and qualified plans each year. Severe penalties can result if required minimum distributions are not made on a timely basis. However, distributions from Roth IRAs are not required during your lifetime.

At the time of your death, the beneficiary designation in effect at the date of death will determine not only who gets the retirement plan assets, but also how quickly your account must be paid out to your beneficiary (and, therefore, how quickly the benefits of tax deferral are lost). So, beneficiary designation adjustments may be necessary as family and beneficiary conditions change (e.g., divorce).

Your retirement plan savings may be critical for you and your dependents’ future well-being. With proper planning, you can maximize tax-deferred earnings, avoid penalty taxes, choose a desired beneficiary, and minimize the amount your heirs are required to withdraw (and pay taxes on) after your death.