Changing Jobs or Retiring? Don't Forget Your Retirement Savings!
A distribution is a payout of realized savings and earnings from a 401(k) or other retirement plan. In general, you must begin taking distributions from your account no later than when you turn 72. Your distribution options may include keeping your money in your plan, enacting a rollover, or taking a cash distribution. Each option has different consequences.
If you keep your money in your plan, you will no longer be able to make contributions, but you will still maintain control over the investments and your money will continue to grow tax deferred. Similarly, in a direct rollover, you move your money directly to an IRA or your new employers qualified retirement account without physically receiving any funds. A direct rollover avoids the penalties associated with a cash distribution from a qualified plan.
Those tempted to take a cash distribution from a qualified plan should consider the taxes and penalties that apply to this type of distribution. You must pay taxes on the money you receive at then-current rates. Those under age 59½ may also have to pay a 10% additional tax on early withdrawals.
Whatever option you choose, you should think carefully before making any decisions and speak with a tax professional before picking a distribution election.