Stash retirement nest egg in IRA rollover

Whether you are a boomer saying goodbye to the daily grind or a Gen- Xer moving on to the next level of your career, retirement or a job change can create an ideal time to ask yourself what you want to do with your accumulated retirement funds. Unfortunately, I don't think there is a cookie-cutter answer to this question.

In pondering the next steps for your nest egg, assess the distribution options available to you and decide which ones will help you accomplish your goals. Here are just a few important reasons why I think you should consider an IRA rollover:

• You retain the tax-deferred status of your retirement investments.

• You have a broader array of investment choices in a self-directed IRA - and can craft a more appropriate portfolio to generate retirement income.

• You can structure a payout plan at any age that avoids the usual early-withdrawal penalty tax.

• An IRA rollover accommodates more customized beneficiary designations than most retirement plans.

Another important benefit of an IRA rollover is that it allows a surviving spouse to continue seamlessly with the IRA account - or consolidate it into his or her own IRA. Other beneficiaries, such as your children or grandchildren, also can receive payments from an inherited IRA over the course of their entire lives (this "stretch-IRA" strategy lets them take advantage of tax-deferred compounding while giving them the ability to spread the income-tax liability over many years).

All IRA beneficiaries will be able to invest their self-directed IRA portfolios according to their individual needs.

There are some situations where rolling over your nest egg to an IRA may not be a desirable course of action. Here are a few of those possible situations:

• If you retire between age 55 and 591⁄2 and need income from this retirement account, you may want to leave some or all of it with your former employer in order to receive penalty-free distributions (income taxes are due upon withdrawal).

• You were born before Jan. 1, 1936, and want to elect 10-year averaging tax treatment for your distribution from the employer plan. Ten-year averaging - which is also available to the beneficiary of someone born before Jan.1, 1936, - is not available if you roll over to an IRA.

• You are able to transfer from one employer's plan to another.

• You prefer the investment choices offered by your former or new employer's 401(k). Note that if your balance is less than $5,000, you may not be able to leave your 401(k) with your employer.

Of course, a decision to not roll over your retirement nest egg to an IRA could impact your spouse, who down the road may have to deal with a former employer's plan representatives at a difficult time and make quick decisions - especially if immediate income is needed. Your spouse can roll over to an IRA in his or her own name, but if younger than age 591⁄2, he or she will be at a disadvantage if income is needed. A spouse who inherits an established IRA can receive penalty-free withdrawals from that account at any age (taxes are due on withdrawals). As for non-spouse beneficiaries, the Internal Revenue Service issued regulations in 2007 that allow them to request a rollover to a beneficiary IRA. Unfortunately, the regulations are not mandatory for plan sponsors, so there is no knowing if your plan will allow your children or grandchildren to take advantage of an IRA rollover and the "stretch-IRA" strategy. It is then possible that your retirement assets could be exposed to immediate taxation.

To help you arrive at the best answer for how to manage your retirement account, you should contact your tax and financial advisors, who should have a host of resources you can take advantage of, including a comprehensive planning tool that factors in elements such as any education funding you may be planning for your children or grandchildren. They can help you consider the possibilities, weigh the outcomes and make informed decisions that result in your wealth working hard for you.

• William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of Morgan Stanley Smith Barney LLC. He can be reached at william.a.creekbaum@smithbarney.com or 689-8704.