I recently inherited a pension due to the death of a parent, and could use some guidance on how I should handle the disbursement. I do not have an immediate need for the money, so I would like to keep it as tax sheltered as possible.
The pension is with the Michigan Public School Employees Retirement System, and since she chose the straight life option for the pension, I am entitled only to her personal contributions and interest.
The amount is approximately $37,000, of which $2,000 is already taxed contributions, $32,000 is untaxed contributions, and $3,000 is interest.
On the Refund Beneficiary form that the Michigan Office of Retirement Services sent me, they gave me three options:
1) Have the refund paid directly to me.
2) Have all previously untaxed contributions and interest transferred directly into a qualified retirement plan or IRA, and have previously taxed contributions refunded to me.
3) Have part or all of my previously untaxed contributions and interest transferred into a qualified retirement plan or IRA, and the balance paid directly to me.
At first glance, I would probably take the $2,000 that is already taxed paid directly to me, and have the remainder invested in a "qualified retirement plan or IRA."
However, if I were to do this, would the remaining money ($35,000), be taxed before it was invested in the qualified retirement plan or IRA?
Could I simply set up an IRA account at Vanguard, and have the money transferred to that account without taxes taken out? If I were to do this, would I still need to begin taking distributions from it?
Any and all help is greatly appreciated. The goal is to defer having to pay the tax man as long as possible, and with as little as possible. Also, is there any information I am missing when trying to make this decision?
Thank you in advance.