Many employees and executives have built up significant assets in company retirement plans and IRAs. As they get closer to retirement, accessing these assets will become very important in their retirement plans. Understanding what choices you have in the distribution of these assets and how to possibly avoid unnecessary taxation will be important for your future retirement. Both 401(k) plans and IRAs grow tax-deferred. When income is taken out of these plans in retirement, the distribution of these plans is 100% includable in your federal income tax and your state income tax.

One of the biggest financial decisions a person will ever make before they retire is whether to roll over their company 401(k) plan. Many people who have built up significant assets in their 401(k) plan and are under age 59 ½ can retire earlier than dreamed. However, it’s common that some retirees think they can’t retire before that age because of the 10% IRS tax penalty if they take money out early. Well, there is an IRS tax law that allows people who qualify with retirement assets in 401(k), IRA, 403(b), and 457 plans the opportunity to receive retirement income from their assets before age 59 ½ and avoid the 10% tax penalty. Another tax consequence you want to avoid is the 20% withholding from 401(k) rollovers if the rollover is not transferred properly to a personal IRA account. Consulting with a tax professional should help you to avoid these costly tax mistakes.

Another very important decision people face as they approach retirement is what to do with their company pension plan. Most company pension plans offer the opportunity to take the pension in a lump sum and roll over the assets to a personal IRA. In fact, you may not want to take your company pension plan payout when you understand what happens if you do. If you take the pension payout, the income you receive is normally lower and the pool of money that accumulated in the plan converts to an income stream for you. That means you no longer have access to all the money you built up in the plan, and if you pass away, your surviving spouse may have not access to it, either.