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Understand Your Distribution Options
When you retire or separate from service with the Archdiocese, you have important decisions to make about what to do with your Retirement Plan assets. No matter the size of your account, the choices you make could influence your standard of living for the rest of your life. Essentially, you have four options to consider:
- Leave your money in the plan
- Take systematic withdrawals
- Take a full distribution
- Roll over your balance to an eligible account
Before you take a withdrawal from your plan account, you may want to talk to a Prudential retirement counselor. Our counselors will help you understand your options and provide the information and assistance you need to make the right decision for you at no extra cost.
Option 1—Leave it where it is*
You may keep your money in the plan after you separate from service and until you are ready to use it. This lets you:
- Keep your money with the same tax-deferred growth potential.
- Move money between investments without tax consequences.
- Continue to take advantage of the plan’s investment options and discounted costs.
*You must have a balance above $5,000 to choose this option (your plan may have a different balance threshold), and must start taking federal Required Minimum Distributions (RMDs) after age 70½. Please see below for more details on RMDs.
Option 2—Take systematic withdrawals
Withdrawing your money at regular intervals is a predictable way to take income while the rest of your assets have the potential to continue to grow tax-deferred. You can choose to receive payments:
You may also choose:
- A specific dollar amount per payment (for example, $1,000 a month until the account is exhausted)
- A specific number of payments (for example, monthly payments for 10 years; the amount of each payment is based on your account value)
When choosing systematic payments,1 consider your future income needs. To avoid withdrawing too much too fast, you may wish to consult a financial professional, who can help you create a sound plan for your situation.
Withdrawals are generally taxed as ordinary income. Withdrawal amounts must satisfy federal Required Minimum Distribution (RMD) rules. Please see below for more details on RMDs.
Option 3—Cash it out
You may withdraw some or all of your account balance in a single lump sum. This gives you immediate access to your money, but there are significant tax consequences:
- You owe income tax on the withdrawal the year it is taken.
- Your investment is no longer tax-deferred.
- A mandatory 20% is withheld for federal taxes.
- You have a penalty of 10% on the amount withdrawn, if you are under age 59½ unless an exception applies.
Option 4—Roll it over
Direct: You can avoid current taxes and retain control of your money by transferring your balance directly to an Individual Retirement Account (IRA) or other “qualified” retirement plan(s) at a financial institution of your choice. Prudential Retirement®offers direct IRA rollovers2 to plan participants. To get started, call 877-PRU-2100 (877-778-2100). Representatives are available weekdays, from 7 a.m. to 8 p.m. CT.
Indirect: You can receive your distribution in cash, then roll it over to an IRA or qualified retirement plan. However, you have just 60 days to complete the rollover(s)—including the 20% of the distribution amount that is required to be withheld for federal income tax If you do not, you’ll be faced with an income tax obligation and a possible early-withdrawal penalty.
In each case:
- Your money has the potential to continue to grow tax-deferred.
- You’ll have a broad range of investment choices.
- You can withdraw from a rollover IRA at any time.3
Withdrawals are generally taxed at ordinary income rates. Once you reach age 70½, federal required RMDs apply. Please see below for more details on RMDs.
Required Minimum Distribution Rules
If you are no longer employed by the employer (plan sponsor), the IRS requires that distributions under the plan begin no later than April 1 of the calendar year following the calendar year in which you attain age 70½. If you fail to receive the Required Minimum Distribution (RMD) for any tax year, a 50% excise tax is imposed on the required amount that was not timely distributed. You should receive a letter from Prudential the year you reach age 70½ informing you that your required minimum distribution will be automatically sent to you in order to comply with the RMD rules.
NOTE: The Internal Revenue Code imposes a 50% excise tax penalty on amounts that should have been distributed under the RMD rule but were not. You are solely responsible for ensuring that minimum distribution amounts are elected in a timely manner.
If you have any questions regarding this, please contact Prudential at 877-PRU-2100 (877-778-2100). Participant service representatives are available Monday through Friday, 7 a.m. to 8 p.m. CT.
Assistance is available
At no cost to you, Prudential retirement counselors are available to help you with your retirement planning needs. Call 877-PRU-2100(877-778-2100) weekdays, from 7 a.m. to 5 p.m. CT (say “counselor” at theprompt). Or visit prudential.com/prsopens in new window for more information.
Transferring to another job within the Archdiocese?
Keep in mind that if you remain employed by any entity within the Archdiocese, you’re generally not eligible to take a distribution until your employment ends.
1Systematic withdrawals may be subject to IRS mandatory 20% withholding and 10% tax penalty if payments do not equal life expectancy payout amounts.
2The Prudential IRAs are not affiliated with your plan or plan sponsor, and a rollover to an IRA means you are no longer part of an employer-sponsored plan. Once assets are rolled over to an IRA, they normally cannot be rolled back to a former employer’s plan.
3For specific tax consequences, see your financial professional or tax advisor. Prudential Retirement does not provide tax advice.
For informational or educational purposes only. This material is not intended as advice or recommendation about investing or managing your retirement savings. By sharing it, Prudential Retirement is not acting as your fiduciary as defined by the Department of Labor’s Fiduciary rule or otherwise. If you need investment advice, please consult with a qualified professional.
Prudential retirement counselors are registered representatives of Prudential Investment Management Services LLC (PIMS), Newark, NJ. PIMS is a Prudential Financial company.
Neither Prudential Financial nor its representatives are tax or legal advisors; we encourage you to consult your legal or tax advisor with specific questions.
Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or its affiliates. PRIAC is a Prudential Financial company.
© 2017 Prudential Financial, Inc. and its related entities. Prudential, the Prudential logo, the Rock symbol and Bring Your Challenges are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.
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