You may now have more tax-saving options than before. Yet you'll end up with more money than you would have if you'd paid taxes on your earnings each year. In addition to tax-deferred growth, you probably won't begin making withdrawals until you're retired, and chances are good that your retirement tax bracket will be lower than the bracket you were taxed at during your peak earning years, which means you'll pay a lower rate on distributions. Also, if you do not qualify to make a deductible IRA contribution, you may be eligible for a new Roth IRA . Roth IRA holders must also satisfy a minimum five-year holding period.
Premature distributions are also subject to income tax.
The easiest way to move employer-sponsored qualified retirement plan funds into a Traditional IRA is to do a Direct Rollover. In this situation, a retirement plan distribution is made payable to the receiving financial institution in care of the IRA holder. The dollar amount being rolled over is unlimited and no federal tax withholding applies. With an Indirect Rollover, the distribution check is made payable directly to the individual. First American Asset Management, a division of U.S. Bank National Association, serves as the investment advisor to the First American Funds and receives compensation for such advisory services.