Ira 401K Total Annual Contributions

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					401K or Rollover IRA? : Issues to            taxes and penalties could total 44%
Consider                                     (10% early withdrawal, 28% federal tax,
                                             6% Missouri tax). This doesn’t include
Liz H. Cauble, CFP ®                         and possible local tax.

Have you changed jobs or retired and         Another consideration is the opportunity
left money in a qualified company            cost of not leaving your money growing
retirement plan? This asset could be the     in a tax deferred account. For example,
largest source of your financial support     a $50,000 balance left to grow at a tax-
during your retirement. If you are           deferred 8% annual return over 25 years
eligible to take a distribution from your    would amount to $342,400. It would
plan, you should understand your             take $67,675 in a taxable account at an
options and the tax consequences             after-tax return of 6.7% to grow to this
involved before you make any                 same amount starting today. Taking
withdrawals.                                 your distribution as cash should only be
                                             used as a last resort.
You have four choices when you leave
your employer.                                         Issues to Consider:
                                                     Taking Cash Distribution
1. Take your distribution as cash                  Pros                     Cons
2. Leave assets at a former employer         Immediate Cash         Penalties & taxes
3. Move the assets to a new employer,                               Loss of tax deferred
   or                                                               growth
4. Roll the assets into an Individual
   Retirement Account (IRA).
                                             Leave the Assets Where They Are With
Cash Distribution                            Former Employer

Taking your account balance as a cash        If the plan allows it, leaving your assets
distribution can provide you with            right where they are can be a convenient
immediate cash, but it is rarely a good      option if you are happy with the
idea.                                        investment vehicles offered by the plan.

You could lose nearly half of your           You avoid income taxes and potential
balance to taxes and penalties. If you       penalties and your investment continues
take a cash distribution before you are      to grow tax-deferred.
age 59 ½ (or age 55 with a separation of
service), you will probably incur the        A qualified employer plan, such as a
mandatory 10% early withdrawal               401K plan is governed by ERISA and
penalty. Since the distribution is           thereby given the highest level of creditor
considered ordinary income, you will         protection. Protection available to IRA’s
also incur federal, state and local income   is governed by state law and varies from
taxes including a mandatory 20% federal      state to state. However, a 2005 U.S.
withholding at the time of distribution.     Supreme Court ruling (Rousey v.
For a $50,000 withdrawal, total possible     Jacoway, 03-1407) shields traditional
IRA assets in bankruptcy when the funds         If Plan allows, may
are found reasonably necessary for the          be able to borrow
account holder's or his/her dependents'         against
support. In addition a 2005 federal             NUA distribution
bankruptcy reform law protects up to $1         option for highly
                                                appreciated
million held in traditional and Roth IRAs
                                                company stock
from creditors.
                                                Move your Assets to Your New
You may be allowed to borrow against
                                                Employer’s Plan
the value of your account depending on
plan rules. Also, keeping your money in
                                                Rolling your assets into your new
your employers plan may give you more
                                                employer’s plan has many of the same
flexibility if you want to contribute to the
                                                advantages and disadvantages as leaving
plan in the future. If you have highly
                                                the assets with your former employer.
appreciated employer stock or if you
                                                You avoid incurring taxes and penalties
were born in 1936 or before, you may
                                                and your funds continue to grow tax-
qualify for special withdrawal strategies
                                                deferred. You also may continue to have
only available through a qualified plan.
                                                the ability to borrow against your
You are also eligible to roll the funds to
                                                balance. An additional benefit is
and IRA at a later date.
                                                account consolidation.
Downsides to consider are that you may
                                                Generally you can move pre-tax
have better investment choices available
                                                contributions and earnings from your
to you through a rollover IRA. You may
                                                existing retirement plan into the new
also be restricted in making changes to
                                                plan. As for after-tax contributions, you
your investment choices in the company
                                                will need to check the rules of your new
plan. Finally, withdrawal options for you
                                                plan to see if they are allowed. You can
and/or a beneficiary are more limited
                                                roll your after-tax contributions into an
than with a rollover IRA.
                                                IRA, but note that after-tax contributions
                                                may not be rolled from an IRA back into
          Issues to Consider:                   a qualified plan.
  Keep Assets in Former Company Plan
       Pros                     Cons            Disadvantages of moving the funds into
Convenience            May have better
                                                a new employers plan include that you
                       investment choices
                       in a rollover IRA
                                                are restricted to the investments
Avoid taxes and        Potential restrictions   available in the new plan and withdrawal
penalties              in making changes        options and the ability to change your
                       to investments           investment choices may be restricted for
Continue tax-          Fewer withdrawal         you and your beneficiaries.
deferred growth        options for you
                       and/or beneficiary
Highest level of       May not access
creditor protection    funds for first home
                       purchase or medical
                       expenses
          Issues to Consider:                   account fees, instead of your employer
   Roll Assets to New Company Plan              and you cannot borrow against an IRA.
       Pros                    Cons             Also, if you have highly appreciated
Convenience            More investment          company stock in the plan, special
                       choices in a rollover    distribution options such as Net
                       IRA                      Unrealized Appreciation (NUA) and
Avoid taxes and        Potential restrictions   forward averaging are not available to
penalties              in making changes        you once the stock is distributed to an
                       to investments
                                                IRA. Creditor protection may be greater
Continue tax-          Withdrawal options
deferred growth        for you and/or
                                                with a qualified company plan. Creditor
                       beneficiary less than    protection of traditional IRA’s and Roth
                       IRA                      IRA’s is governed by state law. Beyond
Highest level of       May not access           state law, traditional IRA assets are
creditor protection    funds for first home     generally protected from creditors to the
                       purchase or medical      extent the funds are found reasonably
                       expenses                 necessary for support. Traditional and
If Plan allows, may                             Roth IRA assets are protected only up to
be able to borrow                               $1,000,000 under federal bankruptcy
against funds                                   laws.

Roll your Assets into an Individual                        Issues to Consider:
Retirement Account (IRA)                             Roll funds into a Rollover IRA
                                                        Pros                     Cons
Rolling your investments into an IRA            Investment options       Creditor protection
allows them to continue growing tax             almost unlimited         depends on state
deferred while also allowing you to                                      law
avoid income taxes and penalties on the         Easier access to         You may be
transfer. Your investment choices are           retirement funds         responsible for
almost unlimited with an IRA and you                                     account fees
have more control over your investments         May be converted to      You cannot borrow
allowing you to develop an investment           a Roth IRA, if you       against IRA funds
                                                qualify
strategy based on your own needs.
                                                Tax deferred growth      No NUA or forward
                                                continued                averaging
This option offers you easier access to         Penalties and taxes
your investments and maximum                    avoided
flexibility as you can, with certain            If you qualify, funds
restrictions, roll these assets into another    for first home
employer’s plan or convert to a Roth            purchase, higher
IRA at a later date. Withdrawal options         education, medical
can be more flexible than with company          insurance and
plans, and estate planning is easier and        unreimbursed
more flexible with rollover IRAs.               medical expenses
                                                May be able to roll
Some potential drawbacks are that you           into employer plan in
                                                the future, if certain
will be responsible for any potential
                                                restrictions are met
This discussion is meant to be an                                   We recommend that you discuss your
overview. The tax laws governing                                    options with a trusted advisor.
qualified plans and IRAs are very
complicated and your decision should be                             Liz H. Cauble, CFP ®                August 2007
based on your specific circumstances.                               liz@caubleharre.com


                                Cash                   Leave with              Move to New                Rollover IRA
                             Distribution           former Employer            Employer Plan
                                                          Plan
Immediate Cash
Avoid penalties
& taxes
Continue tax-
deferred growth
Highest level of
creditor
protection
Net unrealized
appreciation and
forward
averaging
More flexible
withdrawal
options
Most control
over investment
options
More flexible
estate planning
options


Cauble & Harre Wealth Management, Inc. is an independent wealth management firm and a
Registered Investment Advisor in the state of Missouri.

Cauble & Harre Wealth Management, Inc.
12977 North 40 Drive, Suite 213
St. Louis, MO 63141
314.576.1112
www.caubleharre.com


This article is for informational purposes only. It is not in any way a solicitation or offer to sell securities or investment
advisory services except, where applicable, in states where Cauble & Harre Wealth Management, Inc. has made notice
filings or where an exemption or exclusion from such filing exists. Material in this document has been taken from
sources we deem reliable, but we do not guarantee the accuracy of the information. Past performance is not indicative
of future results.

				
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