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My department is closing, I'm losing my job of almost 20 years. I'm fully vested with that company and have a pension lump sum that I'm "supposed to" move into a 401k or 403b. I'm 51, so a long way from ideal pension collecting age. My health is poor and its unlikely I will be alive many more years. My inclination is to take the lump sum (it will be heavily taxed, but I live in a no income tax state, so only the feds take a cut, right?) and save it for my kids, or maybe there is a way to receive it in increments, which make it less taxed? My other question is, if I get a new job which also offers a pension, does adding the old pension dollars to the new pension make it a lot more valuable?
The handling of the pension would depend on the rules for both the old and new plans. I do not think you will be able to combine. I am assuming your pension is not the 401k.
You current 401k could probably be rolled to your new co's 401k.
Your current 401k can be rolled to your IRA. For now probably open up a new brokerage account for the rollover.
Any roll over has the money going from your employer to your broker. The money does not come to you. The new broker will do most of the work for you.
Lets say you retire now. Roll the 401k to a new IRA. I think you can start a life time withdrawal from the IRA without any penalties. I think you have to withdraw funds for at least 5 years and then you can stop.
If you take the cash (lump sum) out of any pension/IRA/401k/493b, you will have to pay income tax on it. If you roll it into another plan, there is no tax. You need to find out what kind of plan your "pension" is, and ask what options they have for rolling it into another plan (an IRA) at an investment firm.
A "lump sum" pension suggests the option of a pension payout or a lump sum payment. You say you are "supposed to rollover the lump sum into a 401K" -- Is that an option or what someone is telling you at your current company where you are losing your job?
You may want to contact an independent financial/estate planner and have them look at your options and advise you about what is in your best interest. A 'fully vested pension' with your current company would suggest a lifetime payout option.
Thank you. I would say my pension is not a 401k. I have a small separate 401k. I guess that's what I don't understand about being "fully vested" and a "lifetime pension" when I'm being laid off many years before retirement age. So, I could go to them if I'm alive at 68-70ish and say Hi, I'm retirement age now and would like to start my lifetime pension payments?
When you leave a company vested in their pension plan, you are generally given two options - the right to receive a stated pension amount at some point in the future or to take a lump sum buyout of your vested interest. If you take the lump sum and roll it into a traditional IRA, it will not be currently subject to income tax. You cannot connect that pension to a future pension with another employer.
I would recommend that roll that lump sum onto an IRA and, after you leave your current employer, also roll your 401k balance into an IRA (which will also not be currently taxable). To do all of this, I suggest you meet with a financial advisor (not a bank or an insurance agent, but a fee only advisor) to explain all of these to you and match your investments with your objectives and risk tolerance.
I also advise that you not immediately begin IRA withdrawals as suggested above. There are penalty free early withdrawals from an IRA allowed under IRS code section 72t, called substantially equal period payments, but those come with very specific rules and calculations of the amounts to be withdrawn. Failure to follow those rule precisely can result in applying the 10% early withdrawal penalty to all withdrawals. Your advisor should be able to explain that to you.
when you leave a company vested in their pension plan, you are generally given two options - the right to receive a stated pension amount at some point in the future or to take a lump sum buyout of your vested interest. If you take the lump sum and roll it into a traditional ira, it will not be currently subject to income tax. You cannot connect that pension to a future pension with another employer.
i would recommend that roll that lump sum onto an ira and, after you leave your current employer, also roll your 401k balance into an ira (which will also not be currently taxable). To do all of this, i suggest you meet with a financial advisor (not a bank or an insurance agent, but a fee only advisor) to explain all of these to you and match your investments with your objectives and risk tolerance.
I also advise that you not immediately begin ira withdrawals as suggested above. There are penalty free early withdrawals from an ira allowed under irs code section 72t, called substantially equal period payments, but those come with very specific rules and calculations of the amounts to be withdrawn. Failure to follow those rule precisely can result in applying the 10% early withdrawal penalty to all withdrawals. Your advisor should be able to explain that to you.
when you leave a company vested in their pension plan, you are generally given two options - the right to receive a stated pension amount at some point in the future or to take a lump sum buyout of your vested interest. If you take the lump sum and roll it into a traditional ira, it will not be currently subject to income tax. You cannot connect that pension to a future pension with another employer.
I would recommend that roll that lump sum onto an ira and, after you leave your current employer, also roll your 401k balance into an ira (which will also not be currently taxable). To do all of this, i suggest you meet with a financial advisor (not a bank or an insurance agent, but a fee only advisor) to explain all of these to you and match your investments with your objectives and risk tolerance.
I also advise that you not immediately begin ira withdrawals as suggested above. There are penalty free early withdrawals from an ira allowed under irs code section 72t, called substantially equal period payments, but those come with very specific rules and calculations of the amounts to be withdrawn. Failure to follow those rule precisely can result in applying the 10% early withdrawal penalty to all withdrawals. Your advisor should be able to explain that to you.
I think you really need to find out more information about the options you have with your pension. For example, at my place of employment, my pension is based on the number of years of credited service (usually the number of years worked) multiplied by a multiplier amount multiplied by the best 5 years of my last 10 years of employment. At full retirement age (such as age 60), I have reached "normal" retirement and can retire and start drawing a lifetime pension based on those calculations. I could choose to retire early (as early as age 50) and my pension would be based on the same calculations with a deduction for retiring prior to full retirement age. However, once an employee is fully vested where I work, they can leave employment and then, when they reach age 60, for example, start receiving their pension. (They are often referred to as "deferred vested" because they are vested, but are deferring receipt of pension benefits.)
They would not have as many years of credited service, but there would be no deduction for retiring early since the payments were not starting until they reached full retirement age. You really need to understand your specific pension benefit options before you can make a well reasoned choice.
Originally Posted by jiminnm View Post
when you leave a company vested in their pension plan, you are generally given two options - the right to receive a stated pension amount at some point in the future or to take a lump sum buyout of your vested interest. If you take the lump sum and roll it into a traditional ira, it will not be currently subject to income tax. You cannot connect that pension to a future pension with another employer.
i would recommend that roll that lump sum onto an ira and, after you leave your current employer, also roll your 401k balance into an ira (which will also not be currently taxable). To do all of this, i suggest you meet with a financial advisor (not a bank or an insurance agent, but a fee only advisor) to explain all of these to you and match your investments with your objectives and risk tolerance.
I also advise that you not immediately begin ira withdrawals as suggested above. There are penalty free early withdrawals from an ira allowed under irs code section 72t, called substantially equal period payments, but those come with very specific rules and calculations of the amounts to be withdrawn. Failure to follow those rule precisely can result in applying the 10% early withdrawal penalty to all withdrawals. Your advisor should be able to explain that to you
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