Receiving Benefits from a Retirement Plan

Two Choices: The Annuity Option vs. Lump Sum Distribution

The Annuity Option: This option is based on monthly payouts, a method to which many employers subscribe. The monthly payout is treated as taxable income and ensures that you have a steady flow of cash until your death.

Annuity options can include a joint or survivor annuity, which results in a lower monthly payment for you; however, your spouse will begin receiving the funds when you die. Although this option benefits your spouse, the purchasing power of your payout while living would be decreasingly less each year with the rise in inflation.

Lump Sum Distribution: This option grants you the authority to take the entire, one-time payout and invest it according to your preferences. Unfortunately, you will pay 10% in penalty fees if you take the entire amount out before you turn 59 1/2 years of age and refuse to establish a new retirement account for rollover purposes within 60 days of receiving the money.

A 20% withholding for income taxes is also applicable unless you establish a trustee-to-trustee transfer that moves your funds into the former employer's plan or a qualified plan immediately. Regardless of your plans, you should consult a professional who may further help you make an educated decision.

This information is presented to educate the reader and does not constitute professional tax and legal advice.
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