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Our Commitment to You

Our Commitment to You

We work hard to serve our clients’ best interests through careful planning and transparent actions. When working with us, you’ll know the reasons for our recommendations and any fees associated with them. You’ll receive timely attention when you have a concern or question. And we can work together in person, by phone, or via email – whichever works best for you.

At a Glance (updated regularly)

401K Distribution Options

  • Generally you have four distribution choices for your qualified employer–sponsored retirement plan (QRP) assets
  • Each has unique factors to keep in mind
  • Know all of your options before making a decision
Decide which option is right for you 
If you’re changing jobs or retiring, you’ll need to decide what to do with assets in your 401(k) or other qualified employer-sponsored retirement plan (QRP). These savings can represent a significant portion of your retirement income, so it’s important you carefully evaluate all of the options.   

Generally, you have four options:
  • Roll the assets to an Individual Retirement Account (IRA)
  • Leave the funds in your former employer’s retirement plan (if allowed)
  • Move savings to your new employer’s plan (if allowed)
  • Withdraw or “distribute” the money and pay the associated taxes
Each of these options has advantages and disadvantages and the one that is best depends on your individual circumstances. You should consider features such as investment options, fees and expenses, and services offered. Your Wells Fargo Advisors Financial Advisor can help educate you regarding your choices so you can decide which one makes the most sense for your specific situation. Before you make a decision, read the information provided in this piece to become more informed and speak with your current retirement plan administrator, and tax professional before taking any action.

Roll the assets to an IRA
Rolling your retirement savings to an IRA provides the following features:

Assets continue their tax-advantaged status and growth potential
You can continue to make annual contributions, if eligible
An IRA often gives you more investment options than are typically available in an employer’s plan
You also may have access to investment advice 

Before rolling your assets to an IRA consider the following: 

IRA fees and expenses are generally higher than those in your employer’s retirement plan
Loans from an IRA are prohibited
In addition to ordinary income taxes, distributions prior to age 59 1/2 may be subject to a 10% IRS tax penalty
IRAs are subject to state creditor laws
If you own appreciated employer securities, favorable tax treatment of the net unrealized appreciation (NUA) is lost if rolled into an IRA
Leave the funds with your former employer 
You may be able to leave your retirement plan savings in your former employer’s plan, assuming the plan allows and you are satisfied with the investment options.  You will continue to be subject to the plan’s rules regarding investment choices, distribution options, and loan availability.  

Keeping assets in the plan features
  • Investments keep their tax-advantaged growth potential
  • You retain the ability to leave your savings in their current investments
  • You may avoid the 10% IRS early distribution penalty on withdrawals from the plan if you leave the company in the year you turn 55 or older (age 50 or older for certain public safety employees)
  • Generally, have bankruptcy and creditor protection
  • Favorable tax treatment may be available for appreciated employer securities owned in the plan
Move savings to your new employer’s plan 
If you’re joining a new company, moving your retirement savings to your new employer’s plan may make sense. This may be appropriate if:
  • You want to keep your retirement savings in one account
  • You’re satisfied with the investment choices offered by your new employer’s plan
This alternative shares many of the same advantages and considerations of leaving your money with your former employer. In addition, there may be a waiting period for enrolling in your new employer’s plan. Investment options are chosen by the QRP sponsor and you must choose from those options.

Withdraw or “distribute” the money 
Carefully consider all of the financial consequences before cashing out. The impact will vary depending on your age and tax situation.  Distributions prior to age 59 1/2 may be subject to both ordinary income taxes and a 10% IRS tax penalty. If you must access the money, consider withdrawing only what you need until you can find other sources of cash. 

  • You have immediate access to your retirement savings and can use however you wish.
  • Although distributions from the plan are subject to ordinary income taxes, penalty-free distributions can be taken if you turn:
  • Age 55 or older in the year you leave your company.
  • Age 50 or older in the year you stop working as a public safety employee (certain local, state or federal) — such as a police officer, firefighter, emergency medical technician, or air traffic controller — and are taking distributions from a governmental defined benefit pension or governmental defined contribution plan. Check with the plan administrator to see if you are eligible.
  • If you own employer securities, a distribution may qualify for the favorable tax treatment of NUA.
Keep in mind
  • Your former employer is required to withhold 20% of your distribution for federal taxes.
  • Distribution may be subject to federal, state and local taxes unless rolled over to an IRA or another employer plan within 60 days.
  • Your investments lose their tax-advantaged growth potential.
  • Your retirement may be delayed, or the amount you’ll have to live on later may be reduced.
  • Depending on your financial situation, you may be able to access a portion of your funds while keeping the remainder saved in a retirement account. This can help lower your tax liability while continuing to help you save for your retirement. Ask your plan administrator if partial distributions are allowed.
  • If you leave your company before the year you turn 55 (or age 50 for public service employees), you may owe a 10% IRS tax penalty on the distribution.
What to consider if you own company stock
Net unrealized appreciation (NUA) is defined as the difference between the value at distribution of the employer security in your plan and the stock’s cost basis. The cost basis is the original purchase price paid within the plan. Assuming the security has increased in value, the difference is NUA.  NUA of employer securities received as part of an eligible lump-sum distribution from an employer retirement plan qualifies for special tax treatment. In most cases, NUA will be available only for lump-sum distributions — partial distributions do not qualify.

We can help educate you so you can decide which option makes the most sense for your specific situation.

Next steps
  • Learn about your choices before taking a distribution
  • Pay special attention to taxes, penalties and fees associated with each action
  • Contact us or your  tax professional if you have questions about how to proceed
When considering rolling over assets from a QRP to an IRA, factors that should be considered and compared between the QRP and the IRA include fees and expenses, services offered, investment options, when penalty-free distributions are available, treatment of employer stock, when required minimum distributions begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.

Wells Fargo Advisors is not a legal or tax advisor.

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Capitol View Financial Strategies Group of Wells Fargo Advisors is a financial practice
within Wells Fargo Advisors, working with a select group of individuals, families, and
institutions. Our team takes a flexible and personalized approach as we focus on our
mission to manage and grow our clients' portfolios. We work with our clients to develop and
implement customized investment and wealth strategies that are tailored to their particular
needs and objectives and that are designed to help them to achieve their short and long
term financial goals.

The Capitol View Financial Strategies Group understands that having money is one thing,
but preserving it is another. We work with our clients to help preserve their wealth to
achieve their unique vision of success and build a legacy that matters to them.

Our Mission Statement: Our mission is to work together as a team to provide unbiased
superior attention and service to our clients' goals and objectives. Education in new
products and services to benefit our clients will be an ongoing priority.