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Old 10-07-2012, 03:10 PM
 
63 posts, read 86,965 times
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Hello,

I received info from a former employer indicating that I have an option to cash out my pension with them for a lump sum of $50k or take annuity payments at so much a month later on. I'm 55 and need to make a decision soon as there's an expiration date on the offer.

My question is, if this is froze at $50k - should I take a lump sum and start a new Roth IRA with it OR perhaps roll it into the 401k with my existing employer ??? Any thoughts on this are greatly appreciated.

TIA
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Old 10-07-2012, 04:16 PM
 
Location: WA
5,565 posts, read 23,220,931 times
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You need to evaluate the annuity and see if the terms favor it over the lump sum... it could be a better deal. If you take the lump sum it will probably be a taxable distribution unless you go to a rollover IRA... I normally would not consider contributing to a 401 over an IRA.
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Old 10-07-2012, 04:49 PM
 
Location: Florida -
10,141 posts, read 13,174,940 times
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Not really clear about your question, but, if you have the option to roll it into a 401K, you are most likely dealing with deferred tax funds -- If you withdraw the funds (for a Roth IRA or whatever), you will have to pay income tax plus a penalty for pre-59-1/2 withdrawal. The cost is high and you will most likely be better-off to roll the funds into your current 401K. (By the way, you can also roll your 401K into a self-directed IRA --- with no penalties, if that's what you want to do).
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Old 10-07-2012, 04:52 PM
 
Location: Florida
5,685 posts, read 5,412,188 times
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The way I read your question you have determined that the annuity is not the way to go. (You might want to get professional advice on this unless you did a present value analysis)
I would roll to an IRA. Then money goes directly to the IRA and not to you. Then you can move the money to a Roth.

If you do not want to have to manage your IRA you could go to your company 401k.
There are a lot of facts that need to be know so the above could all be wrong.
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Old 10-07-2012, 07:23 PM
 
63 posts, read 86,965 times
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I could leave it where it is but it won't grow so I was hoping to put it somewhere that it might grow though I know that comes with some risk too. Current payout is somewhere around $250/mo if I just left it alone.
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Old 10-07-2012, 08:37 PM
 
Location: Wisconsin
24,166 posts, read 52,241,069 times
Reputation: 19708
At your age, roll it over into a tax-deferred IRA at Fidelity, Vanguard, TRowePrice, Schwab, etc. Buy any one of VWINX, VWELX, PTTRX or similar, never touch it, and in 15 years you will have at least $145k, which should provide a payout over 20 years of about $950/mo. assuming fund continues to earn at 5%. No brainer to me. I would take the money.
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Old 10-08-2012, 08:55 AM
 
Location: Northern panhandle WV
3,007 posts, read 2,666,360 times
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since it is a significant chunk of change I would consult a CPA or tax accountant. Don't rely on the advice of a public forum except for ideas, get the details of any pay out or transfer from one of the above professionals before you make a move.
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Old 10-08-2012, 09:31 AM
 
Location: Lexington, SC
4,281 posts, read 11,802,613 times
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Quote:
Originally Posted by Ariadne22 View Post
At your age, roll it over into a tax-deferred IRA at Fidelity, Vanguard, TRowePrice, Schwab, etc. Buy any one of VWINX, VWELX, PTTRX or similar, never touch it, and in 15 years you will have at least $145k, which should provide a payout over 20 years of about $950/mo. assuming fund continues to earn at 5%. No brainer to me. I would take the money.
This sounds best to me but at 5% earnings per year compounded, would it not just double in 14 years ($50K to $100K)? Where is the additional $45K coming from?

Thanks
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Old 10-08-2012, 03:25 PM
 
Location: Wisconsin
24,166 posts, read 52,241,069 times
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Quote:
Originally Posted by accufitgolf View Post
This sounds best to me but at 5% earnings per year compounded, would it not just double in 14 years ($50K to $100K)? Where is the additional $45K coming from?

Thanks
Those funds have been returning well over 5%- anywhere between 7-9% over 10 ten years. I used the lower-end return going forward at about 7.5%; conservative 5% when you are in the decumulation stage.

$50,000 @7.5%x15 (according to my PV/FV calculator) = $153,472.59. Certainly, one could do numbers at lower rates of return.

Ten-year returns:

VWINX - 7.86% VWINX Vanguard Wellesley Income Inv Fund VWINX Quote Price News
VWELX - 9.06% VWELX Vanguard Wellington Inv Fund VWELX Quote Price News

You can find others if you go to Morningstar screener - http://screen.morningstar.com/FundSelector.html

Last edited by Ariadne22; 10-08-2012 at 03:33 PM..
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Old 10-08-2012, 03:56 PM
 
92,666 posts, read 90,325,025 times
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wellesley is one of my favorite all time funds. the only thing that bothers me about it now is it no longer will have the wind at its back with the high bond percentage racking up big gains as it did for 30 years.

while permanent portfolio would be my 1 fund choice if i thought inflation would be an issue ,wellesley is my one fund choice if i was close to retirement and thought inflation wouldnt be an issue.
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