Educated Investor. Be prepared for life s. twists and turns.

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1 Educated Investor A magazine from M&I for retirement plan participants. Volume 14, Issue 1, 2012 Be prepared for life s twists and turns. Keep control of your retirement savings no matter what direction your career takes. Learn more inside. First of two special issues on preparing for change. Wherever you are. Wherever you are going. More online at miretirement.com

2 What Happens When Things Change? What if I need part of my retirement plan distribution to pay expenses? Should I just cash out? Rather than cashing out, consider rolling your money directly into a new employer s plan or an IRA. You can then withdraw only what you need for expenses, while keeping the rest of your retirement savings working for you. This way, you ll only have to pay taxes and a possible 10 percent early withdrawal penalty on the money you really need for expenses. Be sure to first confirm that your new employer s plan allows for in-service withdrawals of the rollover amount. Maybe you discover that after carefully mapping out your career, you want to take a different path. Maybe you learn that the job you thought would take years to get is now within your grasp. Or maybe, despite your best efforts at work, a change beyond your control is occurring. As the old saying goes, There is nothing constant but change itself. And while change often can be exciting, it also comes with challenges. One such challenge? Deciding the best option for the money you may have accumulated in your retirement plan at work. This issue of Educated Investor is the first of two issues dedicated to helping you understand your options for keeping your retirement savings on track, no matter where your career takes you next. 2 Educated Investor

3 Changing Jobs or Retiring? Your Retirement Plan Options Change plays an important part in all our lives. Whatever the reason for leaving your job, you may be entitled to receive a distribution from your company s retirement plan. Even if the amount seems modest, what you ve saved represents important assets you ll need for the future assets you ll want to protect and grow. Should you take all or part of your payout in cash? Move it to a new employer s plan? Transfer it directly into an individual retirement account (IRA) or a qualified annuity? Taking time now to understand your options may help you keep your retirement savings growing tax-deferred and on-track toward meeting your financial goals. The following can help you get started. Option 1: Take Your Distribution in Cash Like many people, you may be tempted to spend, rather than save, the payout from your retirement plan. But allowing whatever retirement benefits you ve accumulated to continue growing tax-deferred might mean the difference between a secure, comfortable retirement and years of financial worry. Pros: Money to spend now. You get access to your retirement savings to spend or invest as you please. Help in a financial squeeze. Ready cash could come in handy if you re in between paychecks, or if you have debt or other loans that need attention. You can change your mind. If, after receiving your distribution check, you decide to save all or part of the money you receive, you still have 60 days to complete an indirect rollover. However, you will have to come up with the 20 percent that was withheld. Otherwise, you ll have to pay taxes and a possible early withdrawal penalty on the amount that was not rolled over. Cons: Your check may be less than you think. When you take your distribution in cash, your money will be subject to an automatic 20 percent withholding for federal income taxes. Depending on your tax bracket, you may owe additional income taxes at tax time. If you re under age 59½, your distribution will also be subject to a mandatory 10 percent early withdrawal penalty. Together, these could eat up nearly a third or more of your retirement distribution. You ll be starting from scratch. Your distribution may not seem like a lot of money, but when you cash out your 401(k) each time you switch jobs, you miss out on the opportunity to build wealth over time. This can make a significant impact on the amount of retirement savings you ll be able to accumulate for the future. You ll lose earning power. Once you ve taken your distribution and paid taxes on it, the money cannot be rolled into another tax-deferred investment; its ability to grow on a tax-deferred basis is lost forever. Bottom Line: Consider this option only if you need the funds immediately and you cannot meet your expenses through other means. First of two special issues on preparing for change. 3

4 Option 2: Leave the Money in Your Former Employer s Plan Often, the easiest thing to do is to leave your money where it is in your former employer s plan. However, if you have less than $5,000 in retirement savings, your employer has the option to either close your account and issue you a check or roll your money into an IRA of its choosing. Pros: It s easy. There s no paperwork to complete or decisions to make. Assuming you re happy with your investment choices, your money stays invested as it was. Tax advantages continue, uninterrupted. Your money will continue to grow tax-deferred. Flexibility. You retain the option of moving your money to another plan or IRA at a later date. Cons: Limited investment choices. Your investments are limited to those in your former employer s plan. Fewer options for managing your account. You cannot add new savings to your account; you also cannot take any loans. What s more, your retirement plan may limit future withdrawals and who you can designate as a beneficiary. Plan could change. Your former employer may decide to change retirement plan providers. A new plan may not offer the same investment options; it could also cost you more in account fees and/or fund expenses. Bottom Line: Consider this option if your old plan has better investment options than your new one. Option 3: Roll the Assets Directly to a New Employer s Plan If you re changing jobs, you may be able to move your money directly to your new employer s plan. Check first to make sure that a rollover is permitted before you arrange a transfer. Pros: Tax advantages continue, uninterrupted. Your money retains its ability to grow tax-deferred without interruption. A direct rollover also means you ll avoid tax withholding and a possible early withdrawal penalty. Cons: It may cost you more. The investment choices available through your new employer s plan may not be as varied or as good as your old one. They may also be more expensive, which can eat away at your investment returns. Keeps your savings in one place. A rollover to a new employer s plan enables you to consolidate your retirement savings, making it easier to manage. This may also save you money by reducing the total plan fees you may have to pay. A choice of new options. Your new plan may offer a wide range of investment choices with lower fees than if you tried to invest in the same funds on your own. Your new plan may allow you to take a loan from your 401(k) account. There ll be new rules. Participating in your new employer s plan means you ll be subject to the investment, exchange and withdrawal rules of that plan. Your new plan may also have a waiting period before you can sign up and initiate a rollover. Plan could change. Your new employer could switch to a retirement plan provider that offers fewer investment options or higher fund fees. Depending on your plan, you may not have the option to roll your money into an IRA or other plan until you leave the company. Bottom Line: Consider this option if your new plan has strong investment options and/or you want to streamline your retirement savings accounts. 4 Educated Investor

5 How can I avoid the 20 percent mandatory withholding? Ask your employer to directly transfer your funds to your new employer s plan or to the financial institution you have chosen for your rollover IRA. Do not accept the check if it is made payable to you directly. What if I leave my money in the plan and my former employer terminates the plan in the future? An employer has the right to terminate a defined contribution plan at any time. However, when a plan is terminated, participants become 100 percent vested in their account balances. This means you will be entitled to receive all your contributions and their earnings, plus any matching contributions your employer made on your behalf. First of two special issues on preparing for change. 5

6 Option 4: Roll the Assets Directly to an Individual Retirement Account (IRA) You can transfer your retirement plan assets directly to either a Traditional or Roth IRA. Pros: Tax advantages continue, uninterrupted. Your money retains its ability to grow tax-deferred, without interruption. If you re making a direct rollover to a Traditional IRA, or if you participate in a Roth 401(k) and complete a direct transfer to a Roth IRA, you ll avoid tax withholding and a possible early withdrawal penalty. However, if you participated in a pre-tax 401(k) plan and want to make a direct rollover to an aftertax Roth IRA, you ll generally owe taxes on the entire conversion amount. Take control of your money. With a rollover IRA, you can choose whatever investments you like. You may also be subject to fewer rules and restrictions than your old employer s plan. One example: A rollover IRA may allow you the option to take money out penalty-free for education expenses or for a first-time home purchase (up to $10,000). This option is not available through an employer-sponsored plan. A rollover IRA also offers estate planning benefits, including the ability to stretch withdrawals over a long period of time. Cons: Loans not available. While many employer-sponsored plans permit loans, IRAs do not. May cost money to exchange funds. Many times, you can move money between investments in an employer-sponsored plan without fees and commissions. This may not be true, depending upon your IRA provider. You re on your own. While a rollover IRA gives you complete control over your retirement assets, depending upon your provider, you may not have access to all the retirement planning tools typically offered through an employer-sponsored plan. Keep accounts together. If you have retirement savings from previous employers, you can consolidate your assets into one IRA, making it easier to track your investments and potentially reduce expenses. If you decide later that you want to move your money, you retain the option to transfer the assets in your rollover IRA to a new employer s plan. Bottom Line: Consider this option if you want total control over your retirement savings, your new employer s plan doesn t offer strong investment options or if you want to consolidate your retirement savings in one place. Keep in mind, however, that a rollover to a Roth IRA is subject to special rules that should be carefully considered before making a decision. Wherever you are Wherever you are going Preparing for Change We hope you enjoyed this first of two issues of Educated Investor about change, and how to keep your retirement savings on track, no matter where your career takes you. Making plans based on available information is the smart thing to do. And strengthening your financial foundation by taking full advantage of your employer s retirement plan is a great way to plan and prepare for the future you want. Stay tuned for the next issue of Educated Investor, where you ll find out more about how to manage your retirement savings plan at every life stage and whatever changes may come. Wherever you are, wherever you are going, your retirement plan will help you get there. 6 Educated Investor

7 What s a rollover IRA? A rollover IRA is a special type of individual retirement account specifically designed for people who are leaving a job or retiring, and who are eligible to receive a distribution from an employer-sponsored retirement plan. A rollover IRA allows you to avoid immediate taxes, including a mandatory 20 percent withholding for federal income tax and a possible 10 percent penalty for early withdrawal, while your savings continue to grow tax-deferred. At M&I, we re ready to help with any of your financial needs. ACCESS your retirement plan account online at miretirement.com View your account balances and activity View your personal rate of return View investment performance and price information Access tools and calculators View account statements and request forms USE the Mi Retirement Line (automated telephone system) by calling , option 1 Receive your account balance Receive investment performance and price information Request account statements and forms SPEAK to an M&I Retirement Services Specialist 24 hours a day by calling , option 2 CONTACT an M&I Distribution and Retirement Planning Specialist at for financial planning or rollover assistance We invite your comments and suggestions for topics to include in future issues. Please write to: Educated Investor,111 East Kilbourn Avenue, MC-3-WM, Milwaukee, WI or send an to: educatedinv@micorp.com Educated Investor is published periodically by M&I Institutional Trust Services and distributed free of charge as a service to our customers. Although carefully verified, data is not guaranteed as to accuracy or completeness. M&I Institutional Trust Services and its affiliates cannot be held responsible for any direct or incidental loss incurred by applying any of the information in this publication. Consult your tax and financial advisor. The term Educated Investor is used by M&I under a co-existence agreement with Precision Information, LLC (PI). The contents of this publication are not in any way connected to, affiliated with, related to, or endorsed by PI, or connected with PI s rights related to its ownership of Educated Investor federal trademark and service mark registrations BMO Financial Corp. All rights reserved. M&I Institutional Trust Services, a division of Marshall & Ilsley Trust Company, N.A., offers products and services through various affiliates of BMO Financial Corp., including M&I Investment Management Corp., M&I Financial Advisors, Inc. (member FINRA/SIPC, maintaining its principal offices at 111 E. Kilbourn Ave., Milwaukee, WI 53202), North Star Trust Company and Taplin, Canida & Habacht, LLC. Investment products are: Not FDIC Insured No Bank Guarantee May Lose Value Online Extra A Roth IRA Conversion Does It Make Sense for You? What s a Roth IRA and how do you know if you should have one? A Roth IRA may or may not be a good addition to your retirement savings plan. To make a decision that s right for you, it s important to know how a Roth IRA differs from a Traditional IRA and from other qualified retirement plans. Read this issue s Online Extra article, A Roth IRA Conversion Does It Make Sense for You? and find out what to keep in mind when deciding on whether to convert to a Roth IRA. It s available exclusively on miretirement.com. First of two special issues on preparing for change. 7

8 111 East Kilbourn Avenue Suite 200 Milwaukee, WI PRESORTED STANDARD U.S. POSTAGE PAID MARSHALL & ILSLEY TRUST COMPANY N.A. Connect With M&I s Top-Ranked Call Center Today % To receive Educated Investor online, sign on to your retirement plan account and provide us with your address Educated Investor M&I Partner: Tampa Bay Sports and Entertainment Tampa Bay Sports and Entertainment is recognized as one of the leaders in its industry. It is the parent company of the National Hockey League s Tampa Bay Lightning, and of the arena in which it plays, the Tampa Bay Times Forum. The Lightning was purchased in March 2010 by money manager Jeff Vinik, who has engineered a revolutionary turnaround of the franchise in just two years, spending $40 million to transform the publicly owned arena, while committing $10 million to Tampa Bay area charities through the Lightning Foundation. In 2011, the Lightning came within one game of playing in the NHL s Stanley Cup Final. It was lauded for its performance on and off the ice by ESPN The Magazine s Ultimate Standings, as the No. 2 ranked team of 123 major sports franchises. The 200 employees of the Lightning and their families are pleased and proud to partner with a leader in its own industry, M&I, for all of their retirement planning needs. Tampa Bay Lightning player and NHL All-Star Steven Stamkos. Lightning founder Phil Esposito outside the newly renovated Tampa Bay Times Forum.