Pension and taxes...

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Lemonaid56
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Pension and taxes...

Post by Lemonaid56 »

Our pension from my employer has been frozen . Turns out it was frozen two years ago at my 17.5 year of employment.
Often in the past as an incentive they offered a lump sum payout to get us old guys to retire. I also feel since the company tried to discontinue the pension at last contract negotiations they will eventually opt to discontinue it which I think often is followed by a lump sum offer to settle.
I thought I would love to get all that money upfront for me to invest wisely but it just occurred to me - taxes.
If I get the money as a lump sum will that be included as this years earnings and will get hammered on taxes? Or, is there a grace period of time that I will have to drop this into an IRA or roll it into my 401k so I will not suffer an horrendous tax hit?
123
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Re: Pension and taxes...

Post by 123 »

Most pension lump-sum payouts can be rolled over to an traditional IRA account. If that option is available there wouldn't be anything taxable until withdrawals/distributions from the IRA occur. The "Tax notice" you get with the pension decision paperwork will normally explain your options. If you receive the funds directly there will be mandatory withholding for taxes, if the money directly rolls over to an IRA no taxes are withheld.
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Lemonaid56
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Re: Pension and taxes...

Post by Lemonaid56 »

Thank you !
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mickeyd
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Re: Pension and taxes...

Post by mickeyd »

Contact Vanguard. They will assist you in the rollover to an IRA.
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michaelsieg
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Re: Pension and taxes...

Post by michaelsieg »

There are many threads regarding "lump sum payout" versus a traditional pension on this site. Before you decide what to do, I would read some of them and then do the math carefully. Often, taking the pension is the better value, especially with today's low interest rates ( even if the pension has been "frozen").

If you are not sure once you get a "lump sum" offer, post it here, there are many that have gone through these issues here and you will likely get good advice.
Engineer250
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Re: Pension and taxes...

Post by Engineer250 »

michaelsieg wrote:There are many threads regarding "lump sum payout" versus a traditional pension on this site. Before you decide what to do, I would read some of them and then do the math carefully. Often, taking the pension is the better value, especially with today's low interest rates ( even if the pension has been "frozen").
I agree. Usually if they are offering you a choice, the "new" thing is generally worse (generally). That said, I rolled over my pseudo pension (defined contribution not defined benefit) to Vanguard just fine. Mine was just a dollar amount that I could use to purchase an annuity at a future date, so my decision was more straightforward. The longer you have until retirement the more it makes sense to roll it over, but it's possible the closer you are it might make more sense to keep it intact.
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rgs92
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Re: Pension and taxes...

Post by rgs92 »

Why would you love to get the money and invest it wisely? Have you compared it to the annuitization you will be offered? This is always a question that needs careful consideration (as was mentioned earlier here as coming up often in Bglhds). This issue often leans to the annuity; not always of course.
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grabiner
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Re: Pension and taxes...

Post by grabiner »

If you made your own contributions to the pension, that money has already been taxed, and will not be taxed again when you withdraw it (whether you take it out now, or roll it to an IRA and take it out later); you'll need to keep records to avoid double taxation.
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Lemonaid56
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Re: Pension and taxes...

Post by Lemonaid56 »

The money in the pension is all company contributed.

The payment plan, depending on the selection I make, as far as survivor and % or whether 5-10 year certain varies from $1306 a month to $1519. Seems low to me and not sure what the lump sum offer might be but thinking that dumping it into the existing 401k or rolling to IRA I might stand a chance of making better money. The thought that DW would benefit more if I get my ticket punched first. She really won't need to worry even without this pension I think but since the company "wanted" me to have it I feel that we both should get the full benefit of it!

That is why I would love to have the money to invest it myself. Thinking it is smaller amount, though not totally insignificant, in the next ten years investing with the Boggle Strategy we can make it better. Does that seem right? They haven't offered the lump sum recently but I am prepping myself if the time comes. Granted back when they were offering it the company was overloaded with "old guys" .Since recently coming out of bankruptcy they are understaffed and may not offer it again unless they are successful with Union negotiations to end it like they wanted to two years ago.

Just thoughts that have rambled through my head at night when having "board meetings" as my dad used to say when sleep would not come easy.
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