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DROP Options

You have finished DROP...now what?

Once you finish DROP and you retire, you have three options for your DROP assets:

1) Leave your money with the State of Louisiana (TRSL)

After terminating employment, you may withdraw funds from your DROP account in periodic payments. Withdrawal requirements are based upon your age at the time of retirement. Two advantages - your principal is guaranteed and no state taxes are paid on withdrawals. However, you must start distributions at retirement (within 11 months), there is no minimum rate of return, you have very little withdrawal flexibility, no investment choices and it may have an adverse effect on your Social Security.

2) Complete Withdrawal (Lump Sum)

After terminating employment, you can take all your DROP money out, put it into a nonqualified account like a traditional checking or savings account. The major disadvantage to this choice is you must pay taxes on the entire distribution amount and this will also increase your income and may push you into a higher tax bracket.

3) Direct Rollover into a Retirement Account

A direct rollover is taking assets directly from your DROP account to another plan, options include a traditional IRA and/or a 403(b). A few advantages - you will have a wide range of investment choices, certain investments will offer more withdrawal flexibility, option for personally tailored investment strategies, minimum withdrawals not required until age 73, and it is less likely to affect your Social Security. Major disadvantage is you lose state tax exemption on all withdrawals.

Detillier Financial Advisors offer free DROP seminars throughout the year. These seminars have been developed to help individuals understand all of the available distribution options. These seminars will also cover common mistakes made with investments as well as innovative methods used to maximize Social Security retirement benefits. This seminar is tailored to those individuals who are currently in DROP, recently completed DROP or who are within two years of retirement.

Contact our office for seminar dates and further information.

*Before deciding whether to retain assets in an employer plan or roll over to an IRA an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, possession of employer stock and reduction/elimination of guaranteed benefits from the pension plan.

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