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Retirement Plan Rollover
- 1. Leaving your job…what can you do with your retirement plan? You Can Take It With You When You Go!
- 5. What Are Your Options? Roll funds over to new employer’s plan (if it will accept them). Roll funds over to a traditional Individual Retirement Account (IRA). Have funds paid directly to you. Leave funds in former employer’s plan (if permitted).
- 14. Recap: What Are Your Options? Roll funds over to new employer’s plan (if it will accept them). Roll funds over to a traditional Individual Retirement Account (IRA). Have funds paid directly to you. Leave funds in former employer’s plan (if permitted).
- 19. Thank you… American General Life and Accident Insurance Company
Editor's Notes
- That’s a good question, isn’t it? If you leave your job, what can you do with your retirement plan? Well, the news is good! You can take it with you when you go! Hello, everyone…welcome to American General Life and Accident Insurance Company’s Retirement Planning Seminar. I’m <Your Name>, and I’ll be your speaker for today’s presentation.
- First, who is American General Life and Accident? We’re a member company of AIG – American International Group. We’ve been in business for more than 100 years, and Provide life insurance, accident and health insurance, and annuity products for Over three million customers. We’re recognized as a technology leader in the life insurance industry. At AGLA, we have a system called SmartPad® that allows us to quickly and efficiently take applications, run illustrations and service our clients. The SmartPad® system is so innovative that part of it is patented, and it’s featured in the Smithsonian Institute in Washington, D.C.
- If you have not done so before the seminar began, you will want to hand out your business cards and Prestige Brochures at this point. Briefly highlight your background and qualifications such as: Number of years in the insurance industry Industry designations Community activities Transition to the next slide by saying, “Before we talk about your options for retirement planning, let’s consider what you have in place now.”
- You will need to do some advance work to find out what type of plan the group has in place now. If you are presenting this to an individual, this is a good place to do some factfinding. It’s a good idea to review their current plan so the details will be fresh in their minds and they can compare it to what AGLA has to offer. You may have to meet with someone from the company’s benefits department to gain the specifics of the plan(s).
- When leaving an employer, you have an important decision to make….deciding what to do with your existing retirement plan. You can leave the funds in your former employer’s plan, if they will allow it. You can roll the funds over to the new employer’s plan, if it will accept them. You can roll the funds over to a traditional Individual Retirement Account…an IRA, or; You can have the funds paid directly to you. Let’s take a closer look at each option .
- As an added benefit for a group presentation, find out in advance if the employer will allow them to leave their funds in the current plan. Get some details on what needs to be done…for example, forms that must be completed…in order to leave the funds in place. One option is to leave the funds in the current plan with your former employer. {Name of Company} does allow you to leave the funds where they are. In order to accomplish this, you would need to… (give specific instructions as to what needs to be done). There are a couple of advantages to leaving the funds in place. First, the money will continue to grow tax-deferred, and you wouldn’t incur any tax consequences or early withdrawal charges until the funds are withdrawn. Note that withdrawals prior to age 59 ½ may be subject to an additional 10% federal income tax penalty. Check with your tax advisor for details. The disadvantages to leaving the funds in place include not being able to make additional contributions, and your investment options will be limited to those available within the plan.
- If you consider rolling funds to your new employer’s plan, you will need to find out if the new plan will accept them, and if so, the type of contributions it will accept. If your plan with your former employer contains contributions that are non-qualified, the new employer’s plan may or may not allow these contributions to be moved to the new plan. Let’s take a moment and discuss the difference between qualified and non-qualified plans. Qualified plans use pre-tax money…taxes have not been paid on the money. Non-qualified plans use after-tax dollars…meaning that taxes have already been taken out of the money. The advantages of qualified plans include the fact that your money will continue to grow tax-deferred, and no tax consequences or early withdrawal charges apply until you withdraw the funds. You may also have broader and better investment options over the old plan, and the rules and options of the new plan apply. The disadvantages to this option are that the new plan may restrict later payouts of the rollover amount; it may require spousal consent for payouts of the rollover amount; the new plan may have more limited investment options, and; what could be a “pro” may also be a “con” in that the rules and options of the new plan will apply. The new plan could be more or less favorable than that of your former employer.
- This choice gives you the most options and control. Here are a few tips that may help you avoid any tax consequences. If you have a traditional qualified plan such as a 401(k)s, it must be rolled into a Traditional IRA. New plans that operate like a ROTH must be rolled into a ROTH IRA. While it is not often recommended due to possible tax assessments, you can convert a Traditional IRA into a ROTH IRA. For those of you who may not be familiar with ROTH IRAs, they differ from Traditional IRAs in several ways. A ROTH IRA allows all earnings to be withdrawn tax free by you or a beneficiary. A ROTH IRA also allows you to avoid early distribution penalties on certain withdrawals, and eliminates the need to take minimum distribution payments once you reach age 70½. We’ll talk more about minimum distributions in just a moment. There are some other differences…if you would like more information on ROTH IRAs, please see me after our seminar today . Although some of these tips cover possible tax consequences, it’s important for me to point out that n either American General Life and Accident Insurance Company nor any agent representing American General Life and Accident Insurance Company is authorized to give legal or tax advice. Please consult a qualified, professional legal or tax advisor regarding the information and concepts contained in this material. Let’s take a quick look at some of the pros and cons of rolling funds into an IRA.
- The first two advantages are the same as we’ve discussed previously…your money continues to grow tax-deferred, and you avoid possible tax consequences or charges until funds are withdrawn. With this option you also gain broad investment choices (you choose where you want your money to go), and you can consolidate several retirement accounts. If you have more than one qualified retirement account, you can put them into one Traditional IRA account. Two disadvantages include not being able to take loans against the funds (like you can with some 401(k) plans), and only having the availability of penalty-free withdrawals under certain circumstances. In dealing with IRAs, there is also something known as a “Required Minimum Distribution”…or RMD.
- Required Minimum Distributions are required by the IRS for Traditional IRAs. If you own a Traditional IRA, you must start receiving distributions each year when you reach age 70 ½ based on an IRS formula. You can take annual RMDs in a series of installments (monthly, quarterly, etc.) as long as total distributions for the year are at least as much as the minimum amount based on the IRS formula. For example, let’s say that Sandra Williams, a widow who just turned age 70 three months ago, has been making payments into a Traditional IRA for the last 19 years. She is notified by the financial institution that manages her IRA that once she reaches age 70½ (three months from now), the IRS will require her to begin taking regular distribution payments from her IRA account. The amount she is required to take annually is based on a formula determined by the IRS. While the annual amount must meet the IRS requirements, Mrs. Williams can choose how often during the year she would like to receive payments. If her required distribution amount is, say, $8,400 annually, she could choose to receive quarterly payments of $2,100 or monthly payments of $700…as long as the total amount she receives during the year is $8,400. Remember, this is one of the differences between a Traditional IRA and a ROTH IRA…a ROTH does not have Required Minimum Distributions. Also…
- If you have more than one Traditional IRA, you must determine a separate RMD for each IRA. You can total these minimum amounts and take the total from any one or more of the IRAs. Applicable taxes will be due on the amount(s) withdrawn. Again, your tax, legal, or financial advisor can give you more information on the tax consequences of IRAs.
- If you decide to have the funds paid directly to you, the IRS will consider the payment as a “distribution.” As with all options, there are some pros and cons. One benefit to this option is that a portion of the funds, usually 80%, are immediately available for use. You also have 60 days from the initial withdrawal to roll 100% of the funds into an eligible plan without incurring penalties. As you can see on the list, there are more disadvantages than advantages to this option. First, the Plan administrator is required to withhold 20% and send it to the IRS for income tax, however; you may owe more than the 20%. Your entire withdrawal will be taxed in the year you withdraw the funds unless you roll them into another qualified plan within 60 days of the withdrawal. Withdrawals prior to age 59½ may be subject to an additional 10% federal income tax penalty. Your retirement savings are reduced, and the distribution may put you in a higher tax bracket for that year Because of the many disadvantages…
- Most people don’t choose to have funds paid to them directly and we don’t recommend this option. So, let’s take a minute to recap the various options you may have to manage your retirement money.
- When leaving an employer, you have some decisions to make about what to do with your existing retirement plan. You can… Leave the funds in your former employer’s plan – if that is allowed. You can roll the funds over to your new employer’s plan – if it will accept them. You can roll funds over to a Traditional IRA, or… Have the funds paid directly to you. So, with all those choices, let me pose a question…”How can American General Life and Accident help you?”
- When we discussed the various options about what to do with your existing retirement plan, we determined that rolling the funds into an IRA would give you the most choices and have the fewest disadvantages over other options. In that case, I hope you will consider an IRA using an AGLA Freedom Annuity. Distribute the flyer “Should you consider purchasing an Annuity?” (AGLA 2428) AGLA Freedom Annuities provide many benefits: They are backed by the financial strength of AGLA and offer tax-deferred growth at attractive interest rates. You own the contract – not the employer – so you have easy access to information and funds which we will discuss in more detail in just a moment. If you choose to annuitize this plan – in other words, set up a payment schedule – it can provide a retirement income that you can’t outlive. Annuitization is not required on these plans, so if you don’t need the steady income stream, you can just leave the money alone and let it continue to grow. These funds also pass to beneficiaries outside of the probate process. If any of you have dealt with probate before, you know it can be costly and can take a lot of time!
- Let’s talk a little more about how easy it is to access your funds during the growth period…without having to annuitize the plan. Starting in the second contract year, you may make an annual withdrawal of up to 10% of the Annuity Value without withdrawal charges. Beginning 30 days after the annuity is issued, you may begin making systematic withdrawals of interest without withdrawal charges. Note that withdrawals prior to age 59½ may be subject to an additional 10% federal income tax penalty. Your tax advisor can give you more information about making withdrawals.
- If you decide that you need a steady income stream and choose to annuitize the plan, there are many Annuitization options available on AGLA Freedom Annuities. These options allow you to take an income stream for the rest of your life, a fixed period of time such as 20 years, or a fixed amount. There are also joint survivorship options that allow you to provide income for one person, and upon death, it will provide income for the survivor…for example, the surviving husband or wife. Remember, though, you are not required to annuitize your contract at any time. Before I open the floor for additional questions, I’d like to remind you that…
- Neither American General Life and Accident Insurance Company nor any agent representing American General Life and Accident Insurance Company is authorized to give legal or tax advice. Please consult a qualified, professional legal or tax advisor regarding the information and concepts contained in this material.
- What questions do you have about using an AGLA Freedom Annuity to manage your retirement savings? Hopefully this seminar has helped you gain a better understanding of how to manage your existing retirement money. I’d like to schedule some time to meet with you individually either by phone or face to face. This will give us an opportunity to discuss your situation and see how we can help. Please see me after the seminar to schedule a day and time. If you know of others who are facing the same decisions about their retirement savings, and could benefit from learning more about their options, please consider giving me their contact information. I’m also available if you have questions about other life or health insurance needs. Thank you for taking time to attend our seminar today. Close the seminar .