Keep Your Retirement Savings Rolling

Leaving Your Employer? Rollover IRAs Let You Avoid Taxes and Penalties on Your Retirement Savings

January 2002

You’re starting a new job. You’ve resigned, cleaned out your desk and enjoyed a farewell toast.

As you head for the future, take a minute to consider your retirement savings. Any time you leave an employer — for retirement, a second career or a new company — you need to decide how to manage the savings you’ve accumulated in your 401(k), 403(b) or other qualified retirement plan account.

You usually have three options. But only one of them — rolling your money over into an IRA — allows you to avoid taxes and penalties while letting your savings and any earnings grow tax-deferred.

1. Leave it If the value of your account meets minimum requirements, you may be able to leave your savings in the plan. However, if you don’t like the plan’s investment choices, or you’re retiring and the plan doesn’t offer withdrawals whenever you want them, you may want to investigate other options.

2. Take it It’s tempting to withdraw your savings in cash. You may have your heart set on a vacation or be planning to put a down payment on a retirement home. Unfortunately, if you choose a cash withdrawal, you’ll owe state and federal income taxes on the amount distributed. If you’re not 55 or older, you’ll also owe 10 percent in penalty taxes. As you can see in the table below, you may be left with far less to spend than you had expected.

	Cash Distribution	Direct Rollover
Distribution Amount	$ 50,000	$ 50,000
Taxes (Federal Taxes at 31%, State Taxes at 3%)	-$17,000	-$ 0
Penalty Tax (10%)	-$ 5,000	-$ 0
Value of Distribution	$28,000	$ 50,000
Value of Rollover IRA after 25 years*	—	$ 342,424

*This example assumes a hypothetical average annual return of 8%. It is not intended to represent the performance of any Northern Trust IRA or Northern Fund.

3. Roll it over By choosing to directly roll over your retirement assets into a Northern Funds Rollover IRA, you can avoid taxes and penalties. Your savings and any earnings will continue to grow tax-deferred. In addition, a direct rollover IRA is the most flexible of choices because you have complete control over the way in which your savings are invested, and can make withdrawals on demand.

Even if the amount seems modest, preserving the savings in your retirement plan is essential. Learn more about how to protect and grow your retirement assets by ordering the Northern Funds Traditional IRA Investor Kit. Our investment kit provides everything you need to successfully roll over your savings. Just call 800/595-9111 between 7 a.m. and 7 p.m. Central time, or read more on Rollover IRAs