401k Rollover Playbook

401k Rollover Playbook

Frequently asked questions about rollovers.

What is a rollover? Simply stated, a rollover is when a person transfers money from a tax-qualified retirement plan, such as a 401(k) or 403(b), to another qualified plan of their choice, typically an Individual Retirement Account (IRA). A rollover can also consist of moving assets from an existing IRA into a new IRA. Any taxable rollover distribution paid from a qualified retirement plan to an investor is subject to a mandatory withholding of 20% for income taxes, even if the investor intends to roll it over later. One can choose to have the payer transfer a distribution directly to another eligible retirement plan or to an IRA. Under this direct rollover option, the 20%mandatory withholding does not apply. Why should an investor consider an IRA rollover instead of leaving assets in a former employer’s plan?* While the company plan may offer some benefits, a rollover should be a consideration for many reasons. Choice: When doing a rollover, investors have the ability to choose from among many different funding vehicles as a destination for the rollover, not just those in the former employer’s plan. The importance of this will depend on how satisfied the investor is with the funds available in the plan or if the broader selection of IRA options may better fit one’s needs and preferences. Fees and expenses are also an important consideration. Control: If an investor rolls over qualified assets, the new IRA account will be independent of any employer program rules (including any plan restrictions). Convenience: Rollovers offer the opportunity to begin consolidating some retirement assets, helping to make retirement planning more manageable and easier to track.

Do I really need to roll over my 401(k) now that one is retiring or no longer working? No, depending upon the retirement plan’s rules, people generally are not required to roll over assets from a 401(k) plan. For many people, the qualified retirement assets that they have spent decades accumulating will play a significant role during their retirement years. Whether people need those assets for income during retirement, or plan on investing them as a hedge against inflation, a rollover can help provide the flexibility to help meet their needs as they retire. What if people want tomakemore contributions tomy rollover IRA? If one has a traditional IRA and is under the age of 72, one can make additional contributions as long as the investor or the spouse have earned income. If the investor has a Roth IRA, there are no age restrictions, but there are income constraints, and people should consult with their tax advisor. Howmuch can people roll over? Once an investor qualifies for a distribution from a company plan, they can roll any amount from those assets into their new IRA. Does this process take a long time? It depends on the policy of the company releasing the funds. Some employers can hold the funds up to 60 days after they receive the request to release them. Generally it is best to work with the representative and together call the company holding the assets. Doing so may help to speed up the transfer of funds, and thus the whole process.

What if an investor would rather roll over their company retirement plan to a Roth IRA? Can they do that? If the investor is doing a rollover from an employer’s plan, they can invest in a Roth IRA or a traditional IRA. Investors should be aware, however, that rolling assets into a Roth IRA would be a taxable event and they would be faced with a tax liability. Let’s say an investor decided to have their retirement plan send them the check, but now they would like to roll it over. What are the options? If it has been less than 60 days since they received the check from the employer, they may still roll it over. However, the employer is required by law to withhold 20% for taxes so they will have to make up that difference from their personal funds. If it has been more than 60 days since they received the check from the retirement plan, it is no longer eligible for an IRA rollover and is now subject to ordinary income taxes, and may also be subject to early withdrawal penalties.

What if an investor currently has an outstanding loan through their company retirement plan? Can they still do the rollover? Depending on the company’s guidelines, they may have to pay off the balance before they can roll over the account. If they do not repay the loan, the outstanding balance may be subject to ordinary income taxes and may be subject to early withdrawal penalties. They may be able to do a partial rollover and continue to repay the loan. Once the loan has been fully repaid, they can then roll over the remaining assets. Can investors roll funds frommore than one company plan into the same IRA? Generally speaking, investors can consolidate assets from many company-sponsored plans into the same IRA. There are, however, some plan assets that cannot be comingled with other qualified assets, so investors should be sure to speak with a tax advisor to verify eligibility.

Beginning 1/1/15, an IRA participant is allowed only one indirect rollover in any 12-month period across all IRAs that he or she owns. An indirect rollover is a participant-initiated distribution in which the participant receives the proceeds and subsequently rolls those proceeds into another (or the same) IRA within 60 days. Individuals can continue to make unlimited trustee-to-trustee transfers (transfers directly between IRAs) as well as unlimited conversions from traditional IRAs to Roth IRAs. Clients should consult their tax advisor prior to effecting a rollover. This is for informational purposes only. ClearPath Wealth Strategies, LLC nor its staff provides legal, tax, or accounting advice. Clients should consult their own legal and tax advisors.

ClearPath Wealth Strategies, LLC is not owned or operated by NYLIFE Securities LLC or it's affiliates.

When considering rolling over the proceeds of a retirement plan to another qualified option, such as an IRA, please understand that an investor has the option of leaving the funds in their existing plan or transferring them into a new employer’s plan. Consult with the Human Resources department of the applicable employer to learn about the options available under their plan and any applicable fees and expenses. Tax consequences may apply if your were to withdraw the funds and there are additional tax consequences to transferring stock out of your retirement plan. Please consult with a tax advisor before taking such action. You should also know that depending on the state where you reside, assets held in a retirement plan may enjoy greater protection from creditors then in other types of tax-qualified vehicles. You should also consider the different fees and the different services that apply to their plan and compare them to any new option that you are considering. *This material is general in nature and is being provided for informational purposes only. It was not prepared, and is not intended, to address the needs, circumstances and/or objectives of any specific individual or group of individuals. ClearPath Wealth Strategies, LLC and its staff does not made a recommendation to purchase any specific products. For advice regarding your personal circumstances, you should consult your own independent financial and tax advisors.

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# 1 Employer-sponsored retirement plan distribution processing can be more complex than an IRA. Participants in an employer-sponsored retirement plan are subject to the rules of the former employer’s plan documents, which can bemore restrictive than an IRA. For example, a planmay not allowpartial distributions, or if it does, itmay limit themto once a quarter or once a year. It alsomay bemore time-consuming towithdrawmoney, since a planmay require additional paperwork and signatures fromthe plan participant, his or her spouse, and possibly the plan administrator. By contrast, IRAs, inmost cases, allowdistributions at any time, for any dollar amount, andwithout any additional authorization. However, it is important to remember that, in addition to income taxes, withdrawals prior to age 59½may be subject to a 10% IRS penalty tax. # 2 Employer-sponsored retirement plans may offer limited distribution options. An individual who hasmoney in a former employer’s retirement plan should check the plan documents to seewhat distribution options are available. Some employer-sponsored retirement plans offer only one lump-sumdistribution fromthe account. If any assets are distributed, the entire balancemust be distributed. This restriction prevents plan participants, and ultimately their beneficiaries, fromtaking advantage of the convenience and possible tax benefits of partial distribution, systematic payments, or annuitization. IRAs, on the other hand, can provide greater flexibility by allowing these additional distribution options. # 3 Employer-sponsored retirement plans may limit the power of tax deferral for spousal beneficiaries and subsequent beneficiaries. Itmay be advantageous for a spousal beneficiary to roll over the assets inherited froman employer-sponsored retirement plan to an IRA. For example, if the beneficiary is thewife of the employee and the plan allows life expectancy payments, shewill have to begin requiredminimumdistributions (RMDs) calculated using the Single Life Expectancy Table. By contrast, if she had rolled the inherited account into her own IRA, she could havewaited until reaching age 72 before beginning RMDs. The payments would then be calculated fromtheUniformLifetime Table, resulting in lower RMDs than distributions calculated fromthe Single Life Expectancy Table. Lower RMDs would allow themoney the opportunity to continue growing tax deferred longer. Her beneficiariesmay also be affected by her choice to leave themoney in the plan. If she does not deplete the entire account, her beneficiariesmust continue RMDs fromthe employer-sponsored retirement plan based on her life expectancy. However, if she had rolled over to her own IRA, her beneficiarymay have been able to stretch over their life expectancy if they are an eligible designated beneficiary and, if not, over amaximum10 year period, possibly stretching them longer than payments froman employer-sponsored retirement plan. # 4 Employer-sponsored retirement plans require a mandatory tax withholding on most distributions. All rollover-eligiblemoneywithdrawn froman employer-sponsored retirement planmust have 20%withheld toward federal income taxes. In addition, some states imposemandatory statewithholding taxes ranging from2%to 8%. However, an IRAowner can elect to have no income taxes withheld and continue to invest that amount, allowing it the opportunity to grow tax deferred. Ultimately, all taxesmust be paid, but themoney to pay themdoes not need to come fromthe IRA. 10 reasons to consider rolling over assets from a former employer’s retirement plan to an IRA.

# 5 Certain premature-distribution penalty exceptions are not available for employer-sponsored retirement plan withdrawals. Individuals under the age of 59½are required to pay, in addition to income taxes, a 10%penalty tax on withdrawals fromemployer-sponsored retirement plans and IRAs, unless they qualify for an exception. Three exceptions for IRA distributions—a qualified first-time home purchase (lifetime limit of $10,000), certain higher education expenses, and health insurance premiums while unemployed—are not available for employer-sponsored retirement plan distributions. For additional details, contact your professional tax advisor. # 6 Having assets in multiple locations can make record keeping complicated. While recent tax lawchanges allow for greater portability of retirement accounts, many employer-sponsored retirement plans still have not adopted these rules, andmany therefore do not allowmoney fromcertain types of retirement accounts to be rolled in. In addition, individuals generally cannot roll money into a former employer’s retirement plan. However, most IRAs generally accept the rollovers permitted by these recent changes. Qualified retirement plans, including some 403(b) plans and governmental 457(b) plans, can be rolled into an IRA. By consolidating these accounts, investors can reduce the number of statements they receive, eliminate redundant fees, and get a comprehensive picture of their retirement asset allocations. Combining accounts can also help simplify retirement distribution strategies. # 7 Employer-sponsored retirement plans may offer only a limited selection of investments. By leavingmoney in a former employer’s retirement plan, individuals are restricted to the investments provided by the plan, and the offeringsmay be limited. Rolling over to an IRA can expand the number of investment options and the ability to diversify. # 8 Most employer-sponsored retirement plans cannot be aggregated for RMD calculations. 1 After reaching age 72, individuals will have to begin RMDs. If someone has an IRA and two 401(k) accounts, for example, separate calculationsmust be done, and separatewithdrawalsmust be taken fromeach account. The task is simpler for thosewho own only IRAs. All the balances can be aggregated (added together for calculation purposes), and the total required amount can bewithdrawn fromany one ormore of the IRAs. Thismeans less paperwork and simplified tracking. It also allows the investor to decidewhich investments to liquidate, and fromwhich accounts. # 9 Many employer-sponsored retirement plans do not offer the services of a financial professional. The importance of workingwith a financial professional should not be underestimated. He or she can assist an IRAowner with asset allocation, distribution planning, and retirement income strategies. Many employer-sponsored retirement plans do not offer this beneficial service. # 10 Employer-sponsored retirement plans may have blackout periods. Employer-sponsored retirement plansmay go into a blackout periodwhen changing record keepers. During the blackout period, plan participants cannot take distributions ormake investment trades to react to changes inmarket conditions. The transfer to a new record keeper requires a due diligence process to account for all the assets. This could takeweeks ormonths depending on the complexity of the plan and on howwell the previous records were kept.

1 403(b) plans can be aggregated with other 403(b) plans for RMDs.

Other important considerations Before rolling over the proceeds of your retirement plan to an individual retirement account (IRA) , consider whether youwould benefit fromother possible options such as leaving the funds in your current plan or transferring them into a newemployer’s plan. Consult with each employer’s Human Resources Department to learn about important plan features and rules. Be sure to compare the fees and expenses of each plan and investment option to those of any other investments that you are considering. Reviewplan documents and the IRA agreement, as well as the prospectuses for plan investment options and any other investments that you are considering. Your registered representative can help explain any newproduct being offered. Neither ClearPath Wealth Strategies, LLC nor its representatives or affiliates provide tax or legal advice. Consult with a tax or legal advisor to discuss any questions or concerns that you have, such as the tax consequences of withdrawing funds or removing shares of an employer’s stock froma retirement plan andwhether money invested in a retirement plan receives greater protection fromcreditors and legal judgments in your state thanmoney invested in an IRA. Also consider that youmay be able to take taxable, but penalty-free, withdrawals froman employer-sponsored retirement plan between the ages of 55 and 59 ½ that youwould not be able to take if you invest in an IRAor annuity. Additionally, if you plan towork after you reach age 72, youmay not be required to takeminimumdistributions fromyour current employer’s retirement plan but would be required to do so at age 72 for funds invested in an IRA.

Securities products and services are offered through NYLIFE Securities LLC, 51 Madison Avenue, New York NY 10010. ClearPath Wealth Strategies, LLC is not owned or operated by NYLIFE Securities LLC or it's affiliates.

ClearPathWealth Strategies, LLC 2600 Network Blvd Suite 130 Frisco, TX 75034

14554.032020 SMRU 1888789 (Exp.02.18.2022)

Your rollover options. A rollover occurs when you transfer money from one eligible retirement plan to another eligible retirement plan.

Option

Potential advantages

Potential disadvantages

• Loans not allowed • Creditor protection is reduced • Fees and expenses may be higher • Availability of penalty-free withdrawals from an employer-sponsored retirement plan between the ages of 55 and 591 • Required minimum distribution rules from your current employer’s retirement plan may not apply but would be required for IRAs • There may be negative tax consequences for withdrawing shares of employer’s stock • Loans not allowed • Must pay taxes in the year of rollover, preferably with assets outside of the retirement account • There is a five-year holding period for Roth IRAs before qualified withdrawals can be made

• No taxes or penalties • Maintain tax-deferred status • Additional contributions allowed to age 70½ • Wide range of investment choices • Greater control over assets • Opportunity to consolidate retirement accounts

Directly roll over to a traditional IRA

• No income limits to qualify • No penalties

Directly roll over to a Roth IRA

• Qualified withdrawals are tax-free • No mandatory withdrawals at age 72 • Additional contributions allowed if you meet income limits • Wide range of investment choices • Greater control over assets • Opportunity to consolidate retirement accounts

• No taxes or penalties • Maintain tax-deferred status

• No additional contributions • Limited to investment choices within the plan • Less control over assets: subject to plan policies of former employer • May require account minimums • Limited to investment choices within the plan • Less control over assets: subject to plan policies of current employer • May require a waiting period to participate, subject to plan terms

Leave the money in your former plan

• No taxes or penalties • Maintain tax-deferred status • Additional contributions allowed • Plan may allow loans

Directly move the money to a new employer’s plan

• Money available to spend or reinvest

• 20% automatically withheld for taxes • Additional federal, state, and local taxes may be due • Possible 10%penalty tax for early withdrawal • Loss of tax-deferred status • Retirement account reduced to $0

Take the money in a lump sum

Your rollover options…

Take cash

Leave in former employer’s plan

Roll over to new employer’s plan

Roll over to IRA

Roll over to Roth IRA

No

Yes

Yes

Yes

Tax-free

Tax-deferred status

Yes (if directly rolled over)

Yes (if directly rolled over)

No

Yes

No

Avoid current taxation

Yes (if directly rolled over)

Yes (if directly rolled over)

Yes (if directly rolled over)

Avoid IRS early distribution penalties

No

Yes

Offers investment flexibility

Yes

May be limited

May be limited

Depends on IRA

Depends on IRA

If permitted under plan and balance is $5,000 or more

Available to all employees

Yes

May be limited

Yes

Yes

Yes (subject to income limits)

Can continue to make contributions

N/A

No

May be limited

Yes

Maybe (not relevant if separated from service after age 55)

Maybe (not relevant if separated from service after age 55)

Yes (not relevant if 59½ or older)

Yes (not relevant if 59½or older)

Eligible for 72(t) distributions

N/A

Beginning1/1/15, you canmakeonlyone indirect (i.e., 60-day) IRA rollover in any 12-monthperiod, regardless of thenumber or types of IRAs youown (see IRSAnnouncement 2014-32); however, youmay continue tomake an unlimitednumber of direct and trustee-to-trustee transfers (transfers directlybetween IRAs) aswell as unlimited rollovers fromtraditional IRAs toRoth IRAs (conversions). Please consult your tax advisor prior toeffecting a rollover.When considering rollingover theproceeds of your retirement plan toanother qualifiedoption, such as an IRA, pleasenote that youhave theoptionof leaving the funds in your existingplanor transferring themintoa new employer’s plan. You should consultwith thehuman resources department of the applicableemployer to learn about theoptions available toyouunder your plan andany applicable fees andexpenses. Tax consequencesmay apply if youwere towithdrawthe funds, and there are additional tax consequences to transferring stockout of your retirement plan. Please consultwith a tax advisor before taking such action. You should alsoknowthat dependingon the statewhere you reside, assets held in a retirement planmay enjoy greater protection fromcreditors than assets inother types of tax-qualifiedvehicles. You should alsoconsider thedifferent fees and thedifferent services that apply toyour plan and compare themtoany newoption that you are considering. Please consult with your employer’s human resources representative and a tax advisor prior tomaking any decisions. ClearPath Wealth Strategies LLC is not owned or operated by NYLIFE Securities LLC or its affiliates. This material is distributed for informational purposes only and is not intended to constitute the giving of advice or the making of any recommendation to purchase a product. NYLIFE Securities LLC and its affiliates, their agents and employees may not provide legal, tax or accounting advice. Individuals should consult with their own professional advisors before implementing any planning strategies.

ClearPathWealth Strategies, LLC 2600 Network Blvd. Suite 130 Frisco, TX 75034

AR06889.032020 SMRU508041 (Exp.04.15.2021)