• Leave the money in your employer’s plan. One advantage of this option is you don’t have to make an immediate decision. If you are satisfied with the plan’s investment options, past performance and service, you might simply leave well enough alone, at least for the immediate future. This may make sense if your employer’s plan offers better interest rates or investment options than other savings or investment plans. Other advantages of this option are that you  maintain the same investment options you had while working, your retirement plan maintains its account history, and you are already familiar with your plan’s service providers. Leaving your money with your former employer has no immediate tax consequences, and you can always roll the money into an IRA at a later date. Professional management of the plan may be another plus, especially if you are uncomfortable making investment decisions. Disadvantages may include a limited number of transactions and restricted investment choices, you may have to maintain a minimum balance to keep your funds with the employer, you may not be able to add funds to this account, you are limited to only the investment options in the plan, loans are no longer available from the plan since you are no longer actively employed, and you may not have flexibility in naming the beneficiary of your choice.
  
  If you die, your beneficiary may also be able to leave the account with your employer for a certain period of time. This differs by plan, so check with your employer for guidelines.
  
  
• Take the lump sum and pay the taxes. This may be an option to consider if you need the money for current expenses, want to invest money for purposes other than retirement, want to pay the taxes now rather than later, or if the lump sum is small. A possible disadvantage is that you will lose a portion of the distribution to taxes. First, your employer must withhold a mandatory 20% tax withholding from the distribution.  Remember that this money has never been taxed, so when you take it out of the plan you will pay taxes on all of it, even if you reinvest it. In addition, if you are under age 591⁄2 and an exception does not apply, you will also pay a 10% federal tax penalty. Taking a lump sum distribution can be costly. In addition to the tax bill you will pay, you lose the benefit of tax-deferred growth provided by IRAs and qualified retirement plans. The long-term impact of taking a distribution may significantly outweigh the short-term benefit of having the money today. Therefore, although there may be times in your life when you absolutely must have the money, think carefully of the impact a lump sum distribution will have on your retirement savings plan.
  
  The following example demonstrates what would happen if you received a taxable distribution of $100,000 and took the money as current income:

	Original lump sum	$100,000
	Less mandatory 20% withholding	$ 20,000
	Received at payout	$ 80,000
	Less additional ordinary income tax (remainder due on original amount after 20% withholding, assuming a 28% bracket)	$ 8,000
	Amount remaining after taxes	$ 72,000

Note that ten-year tax averaging may be available to eligible individuals born prior to January 1, 1936 for eligible distributions from an employer retirement plan, subject to specified rules and restrictions. It is not available for distributions from an IRA. Consult your tax advisor for details.

• Roll the money to an IRA or other qualified retirement plan within 60 days. Take receipt of the lump sum distribution in a check and then deposit it within 60 days to a traditional IRA or a new retirement plan. Partial rollovers are permitted if you prefer to keep a portion of the distribution (on which you would pay tax) and roll a portion to an IRA. There are two disadvantages to the rollover option. If you miss that 60-day deadline, even by a day, you will owe tax on the entire sum. If you are under age 59 ½ it may also be subject to a 10% penalty. Additionally, if you take receipt of the money in a check, your employer must deduct 20% withholding tax from the total amount of the distribution. You will receive only 80% of your money. After receiving your lump sum distribution, you must be careful how you complete the rollover. If you choose this option, be aware that the plan administrator is required to withhold 20% for federal income tax purposes. Therefore, if you do not replace the 20% withheld with money out-of-pocket, the 20% will be included in your income and subject to income tax. If you are under age 591⁄2 and if you do not replace this 20%, it may be subject to the 10% federal premature distribution penalty.
  
  You may want to consider this option if you plan to reinvest only a portion of your eligible rollover distribution, need more time to consider your options, or need short-term, temporary access to your retirement assets.

• Directly transfer the money into an IRA, other qualified retirement plan, or into a new employer’s retirement plan. You may want to consider this option if you do not need the money immediately, want to avoid current taxes and penalties, or want to consolidate your retirement assets. You can avoid current income taxes, the penalty tax, and the mandatory withholding by directly transferring your money into an IRA or another employer’s qualified retirement plan. A direct transfer will keep your savings on its tax-deferred course, since no taxes are due until you withdraw your money.
  There are several ways to transfer the lump sum into a traditional IRA or other qualified plan.
  • You may be able to roll your money from your current employer’s retirement plan to your new employer’s retirement plan if the new employer’s plan permits the rollover. Consult your new employer to determine if the rollover is permissible and if so, how to request the rollover to the new employer’s plan.  
  • To transfer your money from your current employer’s retirement plan, all you have to do is instruct your company to directly transfer your retirement plan funds directly to the financial institution where you established your IRA or to your new employer’s retirement plan.  You never personally take receipt of the money. This eliminates the IRS requirement that the employer withhold 20% of the distribution. This is called a direct rollover.
  • After your employer transfers your funds directly into a traditional IRA, you may have the option to convert it to a Roth IRA if you meet specified income limits. (Married taxpayers who file separately are not eligible for this conversion.)The Roth IRA allows withdrawals of earnings free of federal income tax, provided certain requirements are met. However, conversion of a traditional IRA to a Roth IRA would cause the entire traditional IRA balance that was converted (excluding any non-deductible contributions) to be subject to ordinary income tax on the converted amount. Beginning in 2008, direct rollovers from qualified plans to Roth IRAs may be allowed, but the tax liability and requirements are the same.  This is something you may want to consider if you anticipate that your taxes in retirement will be higher than your taxes while you are working.  Regardless, you should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances, and for detailed information on Roth IRA’s, including conversion of a traditional IRA to a Roth IRA.