options for your 401(k) rollover
TRANSCRIPT
401(k) RolloversAllen R. Patin, Jr. Financial Advisor
Wealth Management
June 2014
CRC805597 January 2014
Expires: March 2015© 2014 Morgan Stanley Smith Barney LLC. Member SIPC.
2
Why Are We Here Today?
Review the options available to you with respect to your 401(k) plan when changing employers
Discuss the pros and cons of the various options, including keeping assets in your previous 401(k) plan or rolling over assets to a new plan or an IRA
Review factors you will need to consider when initiating a 401(k) rollover
3
Options When Changing Employers
Cash out
Leave assets in your previous employer's 401(k) plan
Roll over to a new plan
Roll over to an IRA
4
Cash Out
Taxes and penalties
Loss of tax-deferral
5
Cash Out – Taxes and Penalties
20% withholding tax
Ordinary income tax
10% early withdrawal penalty
6
Cash Out – Taxes and Penalties (cont’d)
Distribution $50,000
Federal income tax (28%) $14,000
State income tax (5%) $2,500
10% early withdrawal penalty $5,000
Net distribution $28,500
7
Cash Out – Loss of Tax-Deferral
Assumptions $10,000 initial investment 8% annual return Tax bracket of 28% during accumulation period and at time of distribution
2005 2010 2015 2020 2025 2030 2035
79,367 Tax-deferred
57,831 Taxable
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
($)
8
Leave Assets in Your Previous 401(k) Plan
No taxes or penalties
Continued tax-deferral
Little or no paperwork
No need to reinvest
Benefits
Previous401(k) Plan
9
Leave Assets in Your Previous 401(k) Plan
Plan limitations
Limited investment options
Fees may be higher
Future plan changes
Access to Funds
Considerations
Previous401(k) Plan
10
Roll Over to a New 401(k) Plan
No taxes or penalties
Continued tax-deferral
Plan features
Asset consolidation
Loan availability
Benefits
AssetsPrevious
401(k) PlanNew
401(k) Plan
11
Roll Over to a New 401(k) Plan
Waiting periods
Limited investment options
Plan features
Need to reinvest
Withdrawal limitations
After-tax contributions
Company stock
Rollover process
Considerations
AssetsPrevious
401(k) PlanNew
401(k) Plan
12
Roll Over to an IRA
Traditional IRA
Roth IRA
No penalties
More investment options
Greater flexibility
Asset consolidation
Benefits
AssetsPrevious
401(k) PlanIRA
Account
13
Roll Over to an IRA
Need to reinvest
Transaction costs
Fees
No loans
Roth IRA
Early withdrawals
Company stock
Rollover process
Required Minimum Distributions (RMDs)
Considerations
AssetsPrevious
401(k) PlanIRA
Account
14
Indirect vs. Direct Rollover
New 401(k) Plan
IRA Account
401(k) Plan
60 days + 20% withholding
Indirect Rollover
Less 20%withholding
15
Indirect vs. Direct Rollover
New 401(k) Plan
401(k) Plan
IRA Account
Direct Rollover
16
Your Financial Advisor Team at Morgan Stanley
Our Financial Advisors can provide
Access to intellectual strength and global resources of Morgan Stanley
Financial solutions that address your specific needs and goals
NameAllen R. Patin, Jr.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.
Financial Advisor
615-269-0303