Retiring? How to Gain Access to your Deferred Comp Plan Without Sacrificing 20% to Withholding Provisions
If you are someone who is retiring, knowing what to do with your maturing deferred compensation plan can be tricky, if you have the wrong information.
Here is precisely what you need to do:
If you are under the age of 59 1/2 roll the money out of the plan and into a traditional IRA. This is something I can easily help you set up. This also avoids the 20% withholding amount that the City of Chicago plan administrator will hold back if you try to withdraw the money directly from them.
Once you have your new IRA setup, you can then take distributions from it. You must consider, however, that you will pay ordinary income taxes on all of the distribution, including a 10% penalty for early withdrawal.
There is a lesser known option to access your IRA penalty free, by way of Rule 72(t). I will cover 72(t) in a subsequent post, but beware, this is a complicated solution and requires the help of a good tax professional.
If you are over the age of 59 1/2 you can roll the money to an IRA, pay your income taxes on withdrawals, and you will not be further assessed any penalties.