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Retirement Distribution FAQs

What you don't know about taking a distribution from your employer-sponsored retirement plan can cost you a small fortune. But it can be difficult to find the information you need to make an educated decision. SunTrust helps with valuable information and tools that take the mystery out of deciding how to handle your retirement fund distribution. Learn about these topics. 

When can I get my money? 
Usually, you (or your beneficiary) are eligible to receive a distribution of your plan assets when one of the following events occurs.
What can I do with my money if I am eligible to receive a distribution?
In most cases, there are four options. The options vary depending on what a specific retirement plan allows.

Option #1 - Take a lump sum distribution
This is the most common option, allowing you to either directly or indirectly roll over the assets to an IRA and continue favorable tax treatment. A direct rollover is a transaction that moves the assets from your employer's retirement plan directly to an IRA. An indirect rollover distributes plan assets to you in the form of cash or property. If your employer distributes assets to you in the form of an indirect rollover, your employer must withhold income tax at a 20%. You then have 60 days to roll the assets to an IRA. You can "make-up" or "add" the amount your employer withheld to the amount you receive. Also, if you were born before 1936, you might be eligible for income averaging.

To compare the different tax options that are available to you and the advantages of rolling your distribution over to an IRA, use the Rollover Planner. If you would like to open an IRA now, select Open an IRA.

Option #2 - Leave your assets in the plan
Most plans allow you to leave your assets in your employer's retirement plan. This option makes sense if you decide to return to work at a later date or if the employer will continue to pick up investment fees. If you leave assets in the plan, you might be eligible to take a loan from those assets. If your balance is less than $5,000, your employer must distribute the entire amount to you; you are not allowed to keep assets in the plan.

Option #3 - Purchase an annuity
You also can purchase a commercial annuity that will pay you a fixed amount over a specified period of time or over your life expectancy. The amount of the payment you receive usually is fixed over the payment period. People who need a constant stream of income often choose this option. Your employer will purchase the annuity for you if you decide to go this route.

Option #4 - Elect to receive installment payments
This option means you create a plan distribution schedule. Often this option has fees.

Can I roll over all of the money I receive in a distribution?

Only certain employer-sponsored retirement plans are eligible for rollover treatment. Profit sharing plans, 401(k) plans, 403(b) plans, pension plans, and employee stock ownership plans are plans that are eligible for rolling over to an IRA. In the past, nonqualified plans, such as 457 plans, nonqualified deferred compensation plans, and supplemental executive retirement plans were eligible to be rolling over to an IRA. However, if you meet the requirements to receive a distribution from an eligible governmental 457 plan you now are eligible to roll your plan assets to an IRA. Your employer will notify you if your plan is a qualified retirement plan eligible for rolling over to an IRA.

Usually one can roll over all of the money in a distribution from an employer's eligible retirement plan. However, certain amounts are not eligible for rolling over to an IRA. For example, you cannot rollover the following:

Your employer will notify you of amounts that are not eligible for rolling over to an IRA.

What happens if I spend any of the money?

Usually any amount of money or property you receive in a distribution from your employer's retirement plan will be included in your income the year you receive it. Although some individuals might be able to elect special tax treatments, most individuals will be responsible for paying ordinary income taxes on the amount of the distribution (less any after-tax contributions made to an employer-sponsored retirement plan). To determine the tax treatments for your distribution, including the advantages of rolling over to an IRA versus taking the distribution as income, work through the Rollover Planner.

What is the true cost of withdrawing a distribution?

While a distribution from your employer-sponsored retirement plan may seem like a great opportunity to pay off some debts, or to buy that special "something" you've been wanting, taking a withdrawal can be a very costly mistake. Not only will you have to pay taxes on the amount that you do not roll over; you might have to pay a 10 percent penalty if you are under age 59½ at the time you receive your distribution. Furthermore, spending the money rather than rolling it over may have long-term consequences for your future financial security in retirement. Before deciding to spend your distribution, work through the Rollover Planner to see what tax treatments are available for your distribution, and to see the advantages of rolling over to an IRA.

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