HANDLING LUMP-SUM RETIREMENT PLAN DISTRIBUTION

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

We've all heard about the aging of America. As the over-50 population begins to swell, more and more people will face an important decision: what to do with the proceeds from their employer-sponsored retirement plan when they leave the company. To avoid jeopardizing any of their hard-earned retirement savings, it's important for people in this situation to understand their options as well as the regulations.

Generally, if you're in this situation, you can either take the money or roll it into an IRA or other retirement account. If you take the money, you'll owe taxes, as well as a 10 percent penalty if you're under 59 1/2.

For example, assume you leave a company at age 53 with $100,000 in your 401(k). If you request the employer send the check to you, your employer is required to withhold 20 percent, or $20,000. You get a check for $80,000. But because you're in the 28 percent tax bracket, your total tax bill is $28,000 -- meaning you have to make up the other $8,000 by your tax-filing deadline. In addition, you also owe a 10 percent penalty, or $10,000, because you took the distribution before age 59 l/2. After taxes and penalties, you have only $62,000 left to invest.

On the other hand, if you have your employer roll your distribution directly into a retirement account, such as an IRA, you'll avoid penalties and taxes. Best of all, your full $100,000 investment continues growing tax deferred until you withdraw it.

Generally, rolling retirement plan proceeds into an IRA or other retirement account is your best option; however, there are times when you may benefit more by taking the distribution. The wrong decision can be costly. If you ever face such a choice, be sure to seek the advice of a tax professional.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.