what to do with pension from previous job

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cals400ex
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what to do with pension from previous job

Post by cals400ex » Thu May 21, 2020 7:02 pm

Hi, my girlfriend has a pension from her old job at that she worked and she received paperwork with a few options that she can do. I am not familiar with pensions, so I'm looking for suggestions. She's 35 years old, in the 22% tax bracket, and an Illinois resident. These were the options that she was given:

1. Receive the entire lump sum ($17,000) as cash. We are aware of the 20% tax + the 10% early distribution tax with this option.
2. Rollover to traditional IRA, Roth IRA, or her current employer's plan. She currently works for TJ Maxx, which has a 401k. She doesn't know the fees or the funds that they offer.
3. Receive a monthly annuity payment, effective this year, for the rest of her life. The amount is ~$60 per month.
4. Leave the old pension from Luxotica alone / defer a payment until a later date. The account accuses interest annually and is the greater of 1% over the 90-day treasury bill interest rate for August of the prior calendar year plus 1 percentage point OR 4.01%.

Any suggestions?

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LiveSimple
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Re: what to do with pension from previous job

Post by LiveSimple » Thu May 21, 2020 7:03 pm

Option #2 rollover to an IRA

Dottie57
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Re: what to do with pension from previous job

Post by Dottie57 » Thu May 21, 2020 7:04 pm

LiveSimple wrote:
Thu May 21, 2020 7:03 pm
Option #2 rollover to an IRA
+1

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ICMoney
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Re: what to do with pension from previous job

Post by ICMoney » Thu May 21, 2020 7:20 pm

I have a small, old cash balance pension that earns 4 percent guaranteed interest per year (or higher, there is some treasury it is indexed to), similar to what you are describing. I have kept it there, as guaranteed 4 percent return seemed good to me, and I just consider it a portion of my bond allocation. So if this thinking makes sense to her, then option 4.

But if she wants simplicity, option 2 as others have opined.

Best, ICM

absolute zero
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Re: what to do with pension from previous job

Post by absolute zero » Thu May 21, 2020 7:29 pm

cals400ex wrote:
Thu May 21, 2020 7:02 pm
Hi, my girlfriend has a pension from her old job at that she worked and she received paperwork with a few options that she can do. I am not familiar with pensions, so I'm looking for suggestions. She's 35 years old, in the 22% tax bracket, and an Illinois resident. These were the options that she was given:

1. Receive the entire lump sum ($17,000) as cash. We are aware of the 20% tax + the 10% early distribution tax with this option.
2. Rollover to traditional IRA, Roth IRA, or her current employer's plan. She currently works for TJ Maxx, which has a 401k. She doesn't know the fees or the funds that they offer.
3. Receive a monthly annuity payment, effective this year, for the rest of her life. The amount is ~$60 per month.
4. Leave the old pension from Luxotica alone / defer a payment until a later date. The account accuses interest annually and is the greater of 1% over the 90-day treasury bill interest rate for August of the prior calendar year plus 1 percentage point OR 4.01%.

Any suggestions?
If she lets it sit and accrue interest, can she Later rollover the balance to an IRA at any time? 4% guaranteed is not something that’s easy to come by.

That being said, since it’s only $17k, its probably not worth the complication of keeping for years/decades. I’d roll it over.

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cals400ex
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Re: what to do with pension from previous job

Post by cals400ex » Thu May 21, 2020 9:25 pm

It sounds like the option is to roll it to an IRA. Would you recommend the traditional or Roth? I assume taxes would be need paid on the $17k to do the Roth?

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Stinky
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Re: what to do with pension from previous job

Post by Stinky » Thu May 21, 2020 9:41 pm

cals400ex wrote:
Thu May 21, 2020 9:25 pm
It sounds like the option is to roll it to an IRA. Would you recommend the traditional or Roth? I assume taxes would be need paid on the $17k to do the Roth?
Roll over to traditional IRA to start off. Separately, she can decide whether to roll the trad IRA to Roth, either in full or in part. If she rolls, she will need cash outside the IRA to pay the taxes.

Another idea is to roll into the current employers 401(k) plan, if the plan has reasonable expenses and fund choices, and if the employer accepts roll-ins. In order to do that, she might need to roll to trad IRA first, then into 401(k) plan. Check with the new employer on all of that.
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Watty
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Re: what to do with pension from previous job

Post by Watty » Thu May 21, 2020 10:30 pm

cals400ex wrote:
Thu May 21, 2020 7:02 pm
4. Leave the old pension from Luxotica alone / defer a payment until a later date. The account accuses interest annually and is the greater of 1% over the 90-day treasury bill interest rate for August of the prior calendar year plus 1 percentage point OR 4.01%.
I have a similar one at 5% and but was larger and I was less than 10 years from retirement so I left the money in it and I will likely take the lump sum before I turn 65. I just count it as part of my fixed income allocation.

With her being so far from retirement she has a couple of problems.

1) She may not always be able to take the lump sum. If the pension numbers go down then they may be required to take the lump sum option away. This happen to my plan for about five years. The company can also change the pension plan to take that option away.

2) For the next 30 years she will need to make sure that they have her address when she moves and the company could go through all sorts of mergers or even go out of business. It is surprisingly common for people to forget about or not be able to find an old pension.

3) 4% sounds pretty good right now but the low interest rates likely will not last for 30 years so it is hard to guess just how much that is really worth.

4) If she might go back to work for them someday that could complicate things. I don't know how that works but if that seems likely she should look into that.

If I was in her situation I would just roll it out to an IRA since it is fairly small and she has so long until she will retire.

Northern Flicker
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Re: what to do with pension from previous job

Post by Northern Flicker » Thu May 21, 2020 11:41 pm

Be careful rolling over to an IRA without doing due diligence on the pension options. The rollover is an irreversible step. If the interest earned is 1 percentage point over the t-bill rate or 4.01%, which is it? Is it the maximum of the two? If so, she should leave it in and take the 4.01% return for the foreseeable future, and re-evaluate the matter when interest rates are higher.

A bigger concern is that she has access to a 401K and doesn’t know anything about the plan. Is there an employer match that she is giving up by not participating?
Index fund investor since 1987.

Topic Author
cals400ex
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Re: what to do with pension from previous job

Post by cals400ex » Sun May 24, 2020 10:09 am

Northern Flicker wrote:
Thu May 21, 2020 11:41 pm
Be careful rolling over to an IRA without doing due diligence on the pension options. The rollover is an irreversible step. If the interest earned is 1 percentage point over the t-bill rate or 4.01%, which is it? Is it the maximum of the two? If so, she should leave it in and take the 4.01% return for the foreseeable future, and re-evaluate the matter when interest rates are higher.

A bigger concern is that she has access to a 401K and doesn’t know anything about the plan. Is there an employer match that she is giving up by not participating?

The interest earned is the higher of the two (4.01% is the worst case scenario). The issue with re-evaluating is that the paperwork she has received noted that she must make a decision within the next month (I don't remember the exact day), or she will not have these options. That may just mean she doesn't have the option to take the lump sum, but I'm not 100% sure.

Regarding her not knowing about her employer 401k, well, that's a whole other issue. :shock:

Thegame14
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Re: what to do with pension from previous job

Post by Thegame14 » Sun May 24, 2020 10:22 am

I assume since you are asking the question, neither of you are good at or want to manage your investments. Therefore I choose #4 leave it alone, let it grow safe and slowly and you will prob end up with a $300-400 per month safe retirement income from just this.

MishkaWorries
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Re: what to do with pension from previous job

Post by MishkaWorries » Sun May 24, 2020 10:40 am

The pension is from Luxoticca? It looks like they are an eyeglass frames designer company that was delisted from the NYSE and now just OTC stock. How healthy is this company? Will they be there in 30 years? 3 years?

I'd put it in an IRA or 401k. My retirement account has a stable value fund that pays a guaranteed 4%. Maybe TJMaxx as one as well.
We plan. G-d laughs.

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Kenkat
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Re: what to do with pension from previous job

Post by Kenkat » Sun May 24, 2020 11:03 am

I’d roll it over into a traditional IRA. She has 30+ years to grow it at a rate higher than 4% or t-bills which I think is a reasonably low bar over that time. To much uncertainty with leaving it in the pension plan in my opinion and I would forgo the TJ Maxx 401k (why lock it into that plan?) or the Roth as 22% is a moderately low tax bracket. I wouldn’t argue much with someone who said the Roth however.

DesertDiva
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Re: what to do with pension from previous job

Post by DesertDiva » Sun May 24, 2020 1:42 pm

A great place to start is at the beginning... read:
https://www.bogleheads.org/wiki/Getting_started

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