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August 2000 QUALIFIED RETIREMENT PLAN DISTRIBUTIONS - CHOICES As you approach retirement, you are faced with many important and complicated retirement plan distribution choices. Making the wrong decision can be costly. To make the right choices, you have to consider difficult tax laws in light of your age and health, the type of retirement plan you have, whether your spouse has separate retirement funds, your overall financial condition, and your estate planning goals. It is important to note that most retirement plans provide for payment in the form of a joint and survivor annuity, if you are married at the time you begin distribution (or, if you are not married at the time of distribution, in the form of a single life annuity). The joint and survivor annuity form provides you with an annuity for life, with continued annuity payments to your surviving spouse for the rest of his or her life (usually 50% of the payment that you received). Under most plans, you can also choose to receive benefits in the form of a lump-sum distribution. However, if you are married, you will need to sign a waiver of your right to a joint and survivor annuity that must be accompanied by spousal consent. If you are single, you can just choose to receive an annuity. Making a choice between receiving benefits in the form of an annuity or in a lump-sum distribution will affect how you are taxed on your plan benefits. Those who choose to receive their funds gradually through annuity payments are taxed as the payments are received, but will have to decide which of the available tax choices gives them the most after tax dollars. Annuities also come in a variety of types: The basic one for retirement plans is the joint and survivor annuity which gives benefits to a surviving spouse as well as the plan participant unless a waiver is made - yet another difficult choice. Choosing essentially to receive the funds at one time, the lump sum option, can get very complicated. Income tax is owed on the entire distribution unless a rollover is made into an IRA which can have some negative consequences that must be considered. On the other hand, if none of the distribution is rolled over, so-called income averaging may be available to reduce the tax. There are two types of averaging, and not all distributions qualify to use it. Another decision is when to begin receiving distributions, and how to figure the amount that must be taken out within certain time limits to avoid a hefty excise tax. As complicated as all of this sounds, it is only the beginning. Retirement plan distribution choices also have many important long-range consequences. We are available to evaluate your situation to help ensure that your choices will meet your financial objectives with the smallest possible tax bite.
Please call us if you would like to discuss the details of your particular circumstances.
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