What are the tax consequences of taking the cash-out option?
If you choose to take your benefit as a lump sum, you may have your benefit paid directly to you or you can roll over all or part of the cash out to an Individual Retirement Account (IRA) or to another employer’s qualified retirement plan. If you choose to receive your benefit directly, your benefit is considered as ordinary income and is subject to an automatic 20% tax withholding. The IRS also may require that you pay an additional 10% penalty tax on amounts you receive before age 59 1/2. If you choose to roll over your benefit, you will defer paying income taxes and can avoid additional tax penalties. The tax consequence of the cash-out option can be complex. You should consult a tax or financial advisor to help you make the best decision for you and your family.
