This is from the Fool's own retirement planing section:Generally, normally, usually (truly! madly! deeply!), the best choice for a retirement plan distribution is to transfer that money to an Individual Retirement Account. By doing so, the tax-deferred status of that sum continues and we reduce our current tax burden. I am a ways from retirement being 44 and work for the U.S. Postal Service(20 years now plus 4 years Military), we have what is called the Thrift Savings Plan, it is a type of 401k savings plan. When we retire we have three choices to withdraw the funds, one is a lump sum (ouch! tax bite!) two is a fixed dollar amount payed over a fixed number of months or three convert it into an annuity based on an IRA life expectancy table. I would be able to retire at age 55 and then be able to take withdrawl from the account without penalty. So why would I want to transfer it to an IRA? If I just leave it in the TSP it would still be tax defered untill I take it out with the added benifit of being able to take it out at age 55 instead of 591/2. It is invested in a S&P 500 index and a Russel 2000 index fund, and if I transfered it to an IRA it would most likely be invested the same so why move to an IRA after I retire?
Greetings, Sonnet, and welcome. You asked:It is invested in a S&P 500 index and a Russel 2000 index fund, and if I transfered it to an IRA it would most likely be invested the same so why move to an IRA after I retire? Why indeed? In your case, a distribution taken from the PLAN (i.e., not an IRA) after you have retired from that job in the year you reach age 55 allows you to take a penalty-free distribution at that age from that job's plan. Move a lump sum to an IRA, and you must wait until age 59 1/2 to that unless you use 72t "substantially equal periodic payment" (SEPP) rules. So, why move it if you're satisfied with the plan and desire the flexibility?As the the author of the piece you quoted, I should point out that it doesn't say you should move the money. Instead, it merely notes that in most cases (such as the one you cite of taking a lump sum), it makes sense to move the distribution to an IRA to avoid the tax hit. In your case, it seems to make sense not to move the money at all.Regards..Pixy
S&P 500 index and a Russel 2000 index fundCorrection, instead of Russel 2000 make that Wilshire 4500.
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