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IRA Rollovers: Retirement Plan Decisions Have Lasting Impact


Changing jobs? Retiring? If so, you’ll need to know what to do with your company-sponsored retirement plan. Determining what to do with your 401(k) or other type of qualified company-sponsored retirement plan may be one of the most important financial events of your life. Since the consequences of your decision can significantly impact the amount you have available, what you choose to do can have a lasting impact on your financial well-being.

Your choices with plan assets  

When deciding what to do with your retirement plan assets, you may choose to stay invested in your current plan, receive a lump sum distribution in cash, roll the funds over into a new employer’s plan or an Individual Retirement Account (IRA).  

Option 1: Stay invested in your current plan. In most circumstances, you can leave your money invested in your employer’s plan. While this may seem to be the easiest approach, this method can be very restrictive in that your investment and distribution options are limited to what that employer offers.

Option 2: Receive a cash distribution. Although the temptation to spend your retirement plan savings may be strong, receiving a cash distribution may mean incurring 20% withholding taxes at a higher tax bracket, paying an additional 10% penalty if you take the distribution before age 59 ½, and negatively impacting your financial stability in retirement.

Option 3: Move money to new employer’s plan. If your new plan accepts retirement assets from previous plan(s), you may be able to rollover your existing retirement money to your new employer’s qualified retirement plan. However, by moving your assets to another qualified plan your investment options will be limited to those offered by the new employer’s plan. In addition, this may also limit your ability to access your money with ease and flexibility as the future withdrawals are subject to the rules under the new plan.

Option 4: Roll over to a self-directed IRA. A rollover of your company-sponsored retirement plan assets directly to a self-directed IRA offers the advantages of continued tax deferral and a wider variety of investment options. Some advantages of this option include:

  • A direct rollover escapes any immediate income tax and the 10% penalty, and there is no mandatory 20% withholding requirement as there is with an indirect rollover.
  • Your savings continue to grow tax-deferred.
  • You are able to choose from a wide range of investment choices not traditionally offered by employer-sponsored plans.

If a portion of your plan consists of your employer’s stock, and that stock has appreciated substantially, a direct rollover may not be your most viable option. In these situations, a law may allow you to save significant taxes on your retirement plan assets. In addition, factors such as your age and need for investment income may also affect your decision. Consult your financial advisor and your tax professional to be sure you understand all your options before selecting which method is right for you. 

Article provided by Robert W. Baird & Co. with the authorization of its author for Evan Guido, Vice President, Financial Advisor at the Sarasota office of Robert W. Baird & Co., member SIPC. The opinions expressed are subject to change, are not a complete analysis of every material fact and the information is not guaranteed to be accurate.


Evan R. Guido
Vice President of
Private Wealth Management
One Sarasota Tower, Suite 806
Two North Tamiami Trail
Sarasota, FL  34236-4702
941-906-2829 Direct Line
888 366-6603 Toll Free
941 366-6193 Fax


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