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Show Page 18 The OGDEN VALLEY NEWS Volume II, Issue VII 1 April 2000 Retiring or Changing Jobs? You May Have Key IRA Rollover Decisions to Make A r e you changing jobs or r e t i r i ng in the ne xt se ve ra l m o n t h s ? I f you’ re like ma ny w o r k i ng individuals, you may be c o v e r ed by your employer ’s 4 0 1 ( k ) plan or oth er re tire me nt p l a n . When you lea ve your job, y o u m ay have to ma ke a n import a n t d ecis ion r egarding a ny dist r i b u t i on you may re ce ive from y o u r em ployer ’s plan. As you w i l l see, the decision is comp l e x , a nd ther e ar e ma ny fa ctors t o c o ns ider, bas e d upon your p e r s o nal cir cums ta nc es. Ge ne ra l l y, you have two c hoic es: d e f e r r ing taxes by esta blishing a n I RA r ollover acc ount, or taki n g t h e dis tr ibution a nd paying t a x e s on it. D e f e r ring Taxes A n I RA r ollover ac count ha s se v e r al tax advanta ge s, includi n g t h e ability to postpone payi n g i ncom e taxes on the IR A a s se t s until you ac tua lly rec eive d i s t r i butions f r om your IR A, m a k i n g the f ull a mount of the d i s t r i bution availa ble for inve stm e n t . While they remain in your r o l l o v e r account, all inve stme nt e a r n i n gs , dividends a nd ga ins a r e t a x - def er r ed. You pay no i n c o m e taxes until you re ce ive d i s t r i butions . O ver time , these t a x a d vantages ha ve the potent i a l t o incr eas e the value of your a s se t s s ignif icantly. P a y i n g Taxes W h ile the ta x-fa vore d r o l l o v e r choice is ve ry attrac t i v e , t h e taxable alterna tive ma y m e e t another f ina nc ia l nee d, su c h as an imm edia te source of f u n d s to s tar t your own busine ss. Yo u m ay als o be eligible for one o f t h e f avor able tax tre atme nts a s so c i ated with the ta xa ble o p t i o n, including: F o rw ard Averaging G e n er ally, your distribution w i l l b e taxed as or dinary inc ome u n l e s s you’ r e elig ible for forw a r d aver aging, whic h c an r e su l t in a tax that is lower tha n ordina ry i n co m e t ax . F o rward averagin g m ay b e u s ed i f y o u ha ve pa rt i ci p at ed i n t h e p l an fo r five yea rs p ri o r t o t h e d i s t ri b u tion, a re ag e 5 9 at t h e t i m e o f t h e distribut i o n , h av e n ev er u s ed forward av erag i n g b efo re, an d me et c ert ai n o t h er el i g i b i l i t y re quiremen t s . F o rward av erag ing will n o l o n g er b e av ai l ab l e afte r Decem b er 3 1 , 1 9 9 9 , ex cep t for emp l o y ees b o rn b efo re 1 9 3 6 who qu al i fy u n d er a s p eci al “gra ndfa t h er” ru l e. Consult your ta x ad v i s o r fo r m o re i n fo rma tion Spec ial Ta x Trea tmen t o f E mploy er S ecu ri ti es If yo u r d i s t ri b u t i o n i n cl u d es se curities o f t h e co m p an y y o u work for, y o u m ay r e c e i v e fa vora ble t ax t reat m en t o n t h es e se curities . Yo u m ay ch o o s e t o ha ve the l o wer o f y o u r av erag e cost ba s i s o r t h e m ark et v al u e (on the d i s t ri b u t i o n d at e) o f those em p l o y er s ecu ri t i es included i n y o u r t ax ab l e i n co m e for the y ear y o u recei v e t h e d i s tribution . T h e am o u n t wo u l d b e ta xe d as o rd i n ary i n co m e (u n l es s you are el i g i b l e fo r fo rward averaging ) an d wo u l d b eco m e your ne w co s t b as i s fo r t h es e se curities . T h i s wo u l d b e y o u r only ta x l i ab i l i t y u n t i l y o u s o l d the se curi t i es . Upon s el l i n g t h e s ecu ri t i es , you wo u l d b e t ax ed o n t h e exce ss, i f an y, o f t h e s al e p ri ce over yo u r co s t b as i s . The exce ss, i f an y, u p t o t h e v al u e o f the sec u ri t i es o n t h e d i s t ri b u t i o n da te , wo u l d b e t ax ed as a l o n g te rm ca p i t al g ai n reg ard l es s o f when the s ecu ri t i es were s o l d . Any other g ai n wo u l d b e t ax ed unde r the cap i t al g ai n ru l es . You may n o t ap p l y t h i s s p ecial ta x t reat m en t t o em p l o y er se curities i f y o u ro l l t h em o v er to a n IR A. Wh en d i s t ri b u t ed la te r fro m an IR A, al l s ecu ri t i es are taxed as o rd i n ary i n co m e at fa ir mark et v al u e as o f t h e d i s t ri - b u t i o n d at e. Al s o , t h e d i s t r i b u t i o n t h at i n cl u d es e m p l o y e r s ecu ri t i es m u s t q u a l i f y a s a “l u m p s u m ” u n d er f e d e r a l t a x l aw. As y o u can s ee, t h e d e c i s i o n s y o u m ak e reg ard i n g t h e t r e a t m en t o f y o u r ret i rem en t p l a n d i s t ri b u t i o n wi l l h av e a s i g n i f i c a n t i m p act o n y o u r cu rre n t i n c o m e t ax , as wel l as y o u r fu n d s a v a i l ab l e fo r i n v es t m en t . B e s u re t o co n s u l t y o u r t a x ad v i s o r t o d et erm in e w h i c h ch o i ce i s ap p ro p ri ate f o r y o u r i n d i v i d u al s i t u at i o n b e f o r e m a k i n g an y t ax -rel at ed i n v e s t m e n t d eci s i o n s . N o t e: T h i s a r t i cl e c o n t r i b u t e d co u r t es y o f Jen n i f er H o u s l e y, F i n a n ci a l A d vi s o r f o r M o rg a n St a n l ey Dea n Wi t t er, S a l t L a k e C i t y, 8 0 0 -7 3 3 -9 0 3 6 e x t . 1 9 8 0 . T h i s a r t i cl e d o es n o t c o n s t i t u t e t a x o r l eg a l a d vi ce . C o n s u l t yo u r t a x o r l eg a l a d vi s o r s b e f o re ma ki n g a n y t a x-rel a t e d o r l e g a l l y rel a t ed i n ves t men t d e c i s i o n s . T h i s a r t i cl e i s p u b l i s h e d f o r g e n er a l i n f o r ma t i o n a l p u r p o s e s a n d i s n o t a n o f f er o r s o l i c i t a t i o n t o s el l o r b u y a n y s ec u r i t i e s o r co mmo d i t i es . Any particular i n ves t men t s h o u l d b e a n a l y z e d b a s ed o n i t s t er ms a nd r i s k s a s t h ey rel a t e t o yo u r c i rc u m s t a n ces a n d o b j ect i ve s . A Bit of Humor A G e o rg ia n f a r me r w a lk e d in to a n a tto r n e y ’s o ff ic e w a n tin g to f ile f o r a d iv o r c e . T h e a tto r n e y a s k e d , “ M a y I h e lp you?” The f a r me r r e p lie d , “ Ye a , I w a n t to g e t o n e o f th o s e d a y - v o r c e s . ” T h e a tto r n e y a s k e d , “ We ll do you have any grounds?” The f a r me r answered, “ Ye a , I g o t a b o u t 1 4 0 a c r e s . ” T h e a tto r n e y s a id , “ N o , y o u d o n ’t u n d e r s ta n d , d o y o u h a v e a case?” T h e f a r me r s a id , “ N o , I d o n ’t h a v e a c a s e , b u t I h a v e a John Deere.” T h e a tto r n e y, “ N o , y o u d o n ’t u n d e r s ta n d , I me a n d o you have a grudge?” T h e f a r me r, “ Ye a , I g o t a g r u d g e , th a t’s w h e r e I p a r k my J o h n D e e r e . ” T h e a tto r n e y s a id , “ N o s ir, I me a n d o y o u h a v e a s u it? ” T h e f a r me r s a id , “ Ye s s ir, I g o t a s u it. I w e a r it to c h u r c h o n Su n d a y s . ” T h e e x a s p e r a te d a tto r n e y a s k s a g a in , “ We ll s ir, d o e s y o u r w if e b e a t y o u u p o r a n y th in g ? ” T h e f a r me r s a id , “ N o s ir, w e b o th g e t u p a b o u t 4 :3 0 a . m. ” Fin a lly, th e a tto r n e y a s k s , “ O k a y, le t me p u t it th is w a y. W H Y D O Y O U WA N T A D I V O RCE ? T h e f a r me r r e p lie s , “ We ll, I c a n n e v e r h a v e a me a n in g f u l c o n v e r s a tio n w ith h e r ! ” The Eccles Community Art Center 2580 Jefferson Avenue, Ogden Offers classes in Dance, Diverse and Visual Arts Call Debra or Rose at (801) 392-6935 for a class schedule. 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