Prudential Financial Dispels Common Tax Misconceptions in Series Geared toward Baby Boomers

Tax season is right around the corner, and while many Americans are focused on how to save money on this year’s returns, they shouldn’t lose sight of how tax decisions they make today can affect their retirement plans tomorrow. In response, Prudential Financial (NYSE:PRU) has developed a series of 12 frequently asked tax questions, along with responses from company subject matter experts. This week’s question marks the third in a series that will run through Monday, April 16. Fact or Fiction? If I change jobs, I have to roll the money I have in my former employer's 401(k) plan into my new employer's plan. While you certainly can roll those funds into your new employer’s 401(k) plan, nothing says you have to do so. According to Robert Fishbein, vice president and corporate counsel in Prudential Financial’s Tax Department, there are several options for managing the 401(k) funds you have invested in a former employer's plan. Here is a look at those options and some of the pros and cons of each: A direct rollover to your own IRA: You can avoid current federal income taxes and a tax penalty, but your IRA may not offer some of the investment options your employer's plan did. A direct rollover to your new employer’s plan:Your assets will remain tax-deferred, and you will avoid current income taxes and a tax penalty. However, you may have different investment choices and limited access to your assets. Take the money and roll it over yourself: If you take the funds and roll them over into an IRA within 60 days, you may access up to 80 percent of the proceeds, and those assets can remain tax-deferred. However, 20 percent of your total funds will be withheld to pay income taxes. Unless you have other funds to replace those withheld, the 20 percent will be subject to income taxes and penalties--in addition to any amount you do not rollover. Because of these tax implications, a direct rollover is typically a preferable approach. Cash out: When you receive the cash directly, you have access to your assets, but you are triggering applicable income taxes and penalties. Leave the money where it is: If your balance is $5,000 or more, you may have the option of leaving your assets in your old employer’s plan. That way, your assets remain tax-deferred, and you avoid current income taxes and tax penalties. Keep in mind, though, that you may have limited access to those funds, and your rights under the plan may change. Finally, if you are 55 or older when you leave your employer, you are eligible for an exception to the 10 percent penalty tax that otherwise generally applies to premature distributions. However, if you move those funds to a plan with your new employer or to an IRA, this exception no longer applies. "With so many options available, the key is to pick the right strategy to best maximize your assets,” says Fishbein. Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $616 billion of assets under management as of December 31, 2006, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping individual and institutional customers grow and protect their wealth. The company’s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, asset management, and real estate services. For more information, please visit www.prudential.com. Prudential Financial and its affiliates do not provide tax advice. Please contact your tax advisor for advice regarding your particular situation. IFS-A129581 Ed. 02/07