A Career Change Can Impact Your Retirement Plan.

If you are leaving a job, remember that distributions and early withdrawals from a 401(k) plan may result in mandatory tax withholding and penalties at the federal, state and, possibly, local level. This can significantly reduce your net distribution. You can continue to defer taxes and avoid penalties by rolling over your plan’s assets into an IRA or another employer-sponsored plan. The easiest type of rollover is a Direct Rollover, in which you instruct your employer to directly roll over your distribution into an IRA. With a Direct Rollover, you avoid any tax penalties.

With an Indirect Rollover, you receive your distribution and you are responsible for rolling the entire amount over to an IRA within 60 days. However, if the company makes the check out to you, it must withhold 20% of the distribution amount for federal income taxes The money withheld will be used as a credit against your income tax liability for the year. When you roll your distribution over, you must make up the amount of the 20% withheld. Otherwise, it will be treated as a distribution and subject to federal income tax, plus a 10% federal income tax penalty if you are younger than age 59½ (or age 55 and separated from service).

If you do not rollover your retirement plan distribution through a direct or indirect rollover, and take possession of the money in your account, you can lose a substantial amount to taxes and penalties, as the example below shows.

The Impact Of Taxes And Penalties On Early Withdrawal If You Are Under The Age Of 59½ And Do Not Directly Rollover To An IRA Amount of Plan Distribution Direct Rollover $40,000 Indirect $40,000 Take Distribution $40,000 20% Federal Tax Withholding* $0 $8,000 $8,000 Additional Federal/State tax due in addition to 20% withheld (assumes combined state and federal tax rate is 28%) $0 $0 $3,200 10% Federal withdrawal penalty† $0 $0 $4,000* Distribution after taxes and penalty $40,000 $32,000 ($8,000 withholding may be entirely or partially refunded, depending on income tax liability.) $24,800

It’s important to plan how your tax-deferred, employer-sponsored retirement account will be handled when you leave a company.

* Assumes the entire distribution from your employer's 401(k) plan is taxable (that is, it is comprised of pre-tax contributions, eligible for rollover) and a 28% federal/state tax rate is applicable in total.

^† The 10% penalty does not apply to certain payments including those made (1) after you separate from service with your employer during or after the year that you reach age 55, (2) because you retired due to disability, or (3) in substantially equal payments over your life or life expectancy.

Time to Consolidate Multiple IRAs?

If you have multiple IRAs, it might be a good time to consolidate them all in one place with an MTB Funds IRA that features no annual administration fee.* This may limit the number of statements you need to reconcile, making it easier to manage your investments in the short-term and simplifying withdrawal decisions in the future.**

* See the MTB Funds' prospectus for applicable sales charges and other fees and expenses that apply to a continued investment in the Funds.

** Distribution of deductible contributions and earnings from a Traditional IRA are subject to income tax and may be subject to a 10% penalty if made before the age of 59½.