Filed Under:Life Insurance, Life Planning Strategies

More workers are rolling over lump-sum distributions

The report shows that 45 percent of workers rolled their lump-sum distribution into another tax-qualified account.
The report shows that 45 percent of workers rolled their lump-sum distribution into another tax-qualified account.

The proportion of workers who received a lump sum distribution from an employer-sponsored retirement plan and rolled over the funds into another tax-qualified savings account edged up between 2006 and 2012, according to new research.

The Employee Benefits Research Institute (EBRI) reveals this finding in the latest edition of “Notes,” the organization’s monthly newsletter. The November 2013 issue of the publication focuses on the decisions workers make upon receiving a lump-sum payment from an employment-based retirement plan after making a job change.

The report shows that 45.2 percent of workers who received a lump sum distribution after a change in jobs reinvested the money into another tax-qualified financial savings account. This compares with 44.3 percent in 2006, 43.4 percent in 2003, 35.4 percent in 1998 and 19.3 percent in 1993.

In contrast, the EBRI newsletter observes, fewer recipients of lump sum distributions are placing the funds into non-tax qualified savings accounts. Last year, 4 percent did so, down from 4.6 percent in 2006, 6.2 percent in 2003, 6.9 percent in 1998 and 8.1 percent in 1993.

Likewise, fewer recipients are using the money for consumption/personal expenditures (7.5 percent in 2012 vs. 9.2 percent in 2006) or educational expenses (0.6 percent in 2012 vs. 1 percent in 2006).

However, more recipients are using the distributions to pay business and home debts. In 2012, 28.2 percent of individuals did so, as compared to 26.1 percent in 2006, 21.8 percent in 2003, 25.8 percent in 1998 and 17.6 percent in 1993.

“An important factor in the change in the relative percentages between 1993 and 2012 is the percentage of lump sums that were used for a single purpose,” the report states. “Among individuals who received their most recent distribution in 2012, nearly all (94.0 percent) of those who rolled over at least some of their most recent distribution did so for the entire amount, whereas only 46.5 percent of those who rolled over at least some of their distribution through 1993 did so with the entire amount.

“Therefore, while a benefit-preservation trend might not look promising when analyzing the use of any portion of the [lump sum distribution], a trend for more preservation is revealed to be quite substantial on an entire use basis, as virtually all of those who chose to roll over their lump sum rolled over the entire amount.”

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Nichole Morford

Nichole Morford
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