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Minimum Distributions

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Should You Convert Your Traditional IRA to a Roth IRA?

Option #2: Receive the distribution in a check made payable to you.

If you choose to have your retirement plan benefits paid to you, consider the following:

  • Your distribution will be subject to a 20% mandatory withholding tax, which means you will receive only 80% of your retirement savings.
  • Your distribution will be subject to federal income tax in the year received unless you roll it over within 60 days of receiving your check.
  • You can roll over 100% of the distribution eligible for rollover treatment by replacing the 20% that was withheld with money from your other savings. You will receive credit for the 20% withheld when you file your federal income tax return for that year.
  • If you only roll over the 80% of your distribution that you received, the 20% withheld will be considered taxable income and will be subject to current federal income taxes and a possible 10% early withdrawal penalty. Depending on where you live, state and local taxes may apply as well.

How can you avoid paying unnecessary taxes and penalties?

Consider a Northern Funds Rollover IRA or have your money transferred directly to your new employer's qualified plan.

Direct Rollover Advantages

  • Your money can continue to grow tax-deferred until withdrawn
  • Avoids 20% mandatory withholding tax
  • Avoids 10% early withdrawal penalty

Option #1: Request a direct rollover into a Rollover IRA.

 

IRS CIRCULAR 230 NOTICE: This information is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. For more information about this notice, see northerntrust.com/circular230.

 
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