While leaving the assets where they are in your employer’s plan may be the simplest option, it is probably the alternative that will give you the least flexibility. First, you’ll be limited to the investment and annuity options available within the plan. These may be fine for your purposes but there may be better alternatives available elsewhere. Also, many employer plans place restrictions on how your money may or must be withdrawn.

Lump Sum Distribution

That leads us to the infamous “lump sum distribution.” A lump sum distribution is when you take the assets in your employer’s plan out (called a “distribution”) all at once, in one “lump sum.” Any time you take a distribution from your plan, it triggers tax consequences; namely income tax will be due on the amount of the distribution. If you’re prepared to pay income taxes on the entire amount. you can take the money and run. Note that if the distribution is large, it may push you into a higher tax bracket for the year. If you were born before 1936, you may qualify for 10-year averaging, which will cut your tax bill. But to preserve the tax deferred status of the funds and the growth within the account, you can roll them over into an IRA.

Rollover IRA

Rolling your savings into an IRA puts you in control of how your assets are invested and in control of withdrawals, within IRS guidelines, while maintaining the tax-deferred status of your savings. You may move the funds in two ways, called a direct or indirect rollover. A direct rollover is when the funds are rolled from your employer’s plan straight to your new rollover account.

While it is an option, beware having a check made out to yourself (an “indirect” rollover). If you do, you have 60 days to deposit the money into an IRA. But be aware that your employer has to withhold 20 percent for prepayment of income tax and you must deposit deposit 100 percent to avoid a taxable distribution. You would get the 20 percent back when you file your income taxes for the year but in the meantime you have to make up the difference. If your intention is to roll the entire amount into your rollover IRA, a direct rollover may be your best option.

Company stock

If your account includes company stock issued by your employer, you may consider taking that as a lump sum distribution. You’ll owe income tax on the amount the stock was worth when it went into the account and capital gains tax on the rest, which may be less than rolling it into the IRA and then paying income tax on the entire amount when it is withdrawn. All IRA withdrawals are taxed at your current income tax rate. This is a complicated strategy that may have some disadvantages, so seek the advice of your certified public accountant first.

Choosing an IRA trustee

Most brokerage firms, mutual fund companies, banks, credit unions or insurance companies can establish a rollover IRA for you. Choosing an IRA trustee/custodian depends on what you want for the account.

If you would like to invest in equities, you need a brokerage firm. If you want the guarantees an annuity can provide, look for a firm that offers annuities as well. Your financial adviser can help you decide. Look at the investment options offered, fees, and the level of service and advice that will be available to you.

Juggling Multiple Accounts

In most cases you can combine separate retirement accounts, 401(k)s, 403(b)s, 457 plans, SEPs and IRAs, etc., into a single rollover IRA. Or if you worked for more than one employer you may want to combine those plans into one account. This will provide many benefits, cut down on paperwork, make it easier to keep track of all of your assets, simplify the minimum required distribution calculation, it probably will reduce fees, and the larger asset base makes it easier to manage asset allocation and diversification.

Annuitization

Outliving one’s assets is the biggest fear most retirees have. If you are worried about managing your nest egg on your own, you may consider purchasing an annuity with some or all of your retirement savings.

Depending on the terms of the annuity, you could receive a stream of income for a set period, for the rest of your life or for the rest of you or your spouse’s life. Contracts with different issuers may vary. Variable annuities are sold by prospectus, which contains more complete information including risk factors, fees surrender charges, the mortality and expense guaranteed charge, fund management fees, and other costs that may apply. Please read the enclosed prospectus carefully before investing.

Death benefits are backed by the financial strength of the issuing insurance company. Early withdrawals are subject to surrender charges.

Withdrawals are subject to ordinary income tax, and if taken prior to age 59, a 10 percent IRS penalty may apply. Withdrawals have the effect of reducing the death benefit and cash surrender value.

Advest does not provide advice on legal or tax issues, and competent tax and legal advice should always be obtained.

Annuities are available in two varieties: fixed and variable. A fixed annuity pays a set amount each month for the life of the annuity.

The drawback to a fixed monthly payment is it may lose purchasing power over time due to inflation. If you are retired for 20 years or more, this effect can be considerable.

For people who are willing to take more risk, you may want to consider a variable annuity. A variable annuity’s payout may rise over time, which may help it keep ahead of inflation, but it can also fluctuate up and down greatly depending on market performance.

Consult an expert

Seeking the advice of your financial adviser at a time like this is essential. He or she can help you weigh your options and come up with a strategy for making the best use of your hard-earned retirement savings.

Marc A. Pellerin is an associate vice president and investment advisor with Advest Inc. in Lewiston.