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Ted Benna's Recommended Retirement Rollover Strategies

By Clifton Linton
Writer, 401Kafé


It's your last day of work. Tomorrow is the first day of retirement.

At your exit interview, the human resources director hands you a check, grins and says, "congratulations, here's your 401(k) balance. Don't spend it all in one place."

Your eyes pop as you look at the large figure. It's the largest check you've ever had. But, what do you do with it?

We asked Ted Benna, the creator of the first 401(k) plan, how he'd react. He offered two strategies, both involving rolling the money into a traditional IRA so that you continue to take advantage of tax deferral. (Remember, you have to roll over the money within 60 days to avoid paying tax on the entire amount.)

1) Roll the money into a traditional IRA invested in mutual funds, and set it up to make systematic payments to you.

Benna prefers this option because it "will give you a lot more flexibility and will enable you to leave any remaining amount to your heirs."

2) Roll the money into a traditional IRA and use it to buy an annuity with a guaranteed lifetime income. If you are married, you can buy an annuity that will also make payments to your spouse after you die. There are many types of annuities on the market, so be sure to understand the conditions of the one you choose.

The upside of an annuity is that if you live a long time, the annuity still pays out even if it's more than you originally invested. "The downside is (if you die earlier than expected) the insurance company keeps money," said Benna.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.
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