What You Should Do with Your Retirement Investment
We live in a rapidly changing world. Current events, new technologies, economic changes and more all affect our personal and work lives. In keeping with this rapid pace of change, one in five of us will change jobs this year.
Many who change jobs will fail to adequately protect a retirement investment that may have been years in the making. Investments in employer retirement plans provide the opportunity to save, pre-tax, for retirement without paying current income taxes on investment earnings. These features – pretax contributions and tax-deferred growth – offer a substantial benefit and opportunity for long-term growth of capital.
|20 percent withholding||-$ 20,000|
|Taxes at 28 percent||$ 28,000|
|Premature withdrawal penalty||$ 10,000|
|Total, taxes and penalties||$ 38,000|
|At tax time you owe||$ 38,000|
|Less 20 percent already withheld||-$ 20,000|
|You pay, out of pocket||$ 18,000|
|Net value of your $100,000||$ 62,000|
If it’s your turn to change jobs, don’t treat that investment as a windfall. You could be making a big mistake.
First, when you withdraw a pretax investment as a lump sum, you’re required to pay all those deferred taxes up front. That’s current income taxes on the entire amount of the investment, plus its earnings.
Further, if you withdraw before you reach age 59, you may be subject to an additional 10 percent IRS penalty tax To help offset this, 20 percent of your investment will be automatically withheld, but you’ll pay the remainder of the bill with your next income tax filing. That could be substantial.
At the 28 percent tax bracket, a $100,000 investment automatically shrinks to only $62,000 when withdrawn pre-retirement (before age 59) from an employer’s plan. At higher tax brackets, the shrinkage is even more dramatic. What’s more, that $100,000 is no longer invested for your ultimate goal: retirement security.
Taking the next step
Talk to your ING representative about how you can best protect your retirement investment when you change employers. ING is one of the country’s leading providers of retirement and investment solutions for the individual, both at home and in the workplace, and we can help you explore the best way to make that money work for you and your family – in the midst of change.
Explore your options
Your retirement investment doesn’t have to suffer just because you change jobs.
Leave the money where it is
If allowed by your plan, simply leave your investment in your old employer’s plan. You won’t be able to contribute once you’ve stopped working there, but your money will continue to enjoy the benefits of tax-deferral on any investment earnings. You’ll still receive the same reports as before you left, and you’ll still be able to allocate your investment among available options, as outlined in the plan.
Roll the money into an IRA
An IRA (Individual Retirement Account) allows you to roll your retirement investment into an individual investment and continue to enjoy the benefits of tax deferral and investment diversity. IRAs, like your employer’s plan, are intended to be investments for retirement. Annuity Contracts offer tax deferred growth and may offer additional features such as death or living benefits that may be a suitable option for you.
Sometimes these additional contract features may be available at an additional cost. Please carefully read the prospectus before investing.
Invest in another plan
Your next employer may offer a similar plan and may allow rollovers from previous plans. If this option is available to you, it may allow you to streamline your retirement investments into one account – and you’ll be able to continue making contributions into the new plan.
You should consider the investment objectives, risks, charges and expenses of the variable product and its underlying fund options; or mutual funds offered through a retirement plan, carefully before investing. The prospectuses/prospectus summaries/information booklets contain this and other information, which can be obtained by contacting your local representative. Please read the information carefully before investing.
Insurance products, annuities and funding agreements issued by ING Life Insurance and Annuity Company (“ILIAC”), One Orange Way, Windsor, CT 06095, or annuity products are issued by ReliaStar Life Insurance Company, each of which is solely responsible for meeting its obligations. Plan administrative services provided by ILIAC or ING Institutional Plan Services, LLC. All companies are members of the ING U.S. family of companies. Securities distributed by or offered through ING Financial Advisers, LLC (member SIPC) or other broker-dealers with which it has a selling agreement. Only ILIAC is admitted and its products offered in the State of New York.
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