Pension vs. TIRA paperwork

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gd
Posts: 1416
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Location: MA, USA

Pension vs. TIRA paperwork

Post by gd » Fri Aug 10, 2018 8:25 am

After leaving a company years ago, I had a small sum in a company pension that I left in place just for the hell of it. I'm shifting our finances to payouts, and must soon decide whether to get a lump sum (probably to put in TIRA) or activate the pension (about $1k/yr). The financial impacts are trivial or unknowable. My common sense tells me to simplify things, get a lump sum and be done with the paperwork forever. It sort of amuses me though, and does have a trivial diversification benefit and is federally insured. My question: The tasks I know this creates are another 1099-R each year, making sure the checks go to the correct bank account if we change banks, and executors know how to notify them of deaths. Are there any other tax or bookkeeping effects of company pensions that are different from a TIRA or SPIA that we'd not want to bother with for the rest of our lives?

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Pension vs. TIRA paperwork

Post by megabad » Fri Aug 10, 2018 10:54 am

gd wrote:
Fri Aug 10, 2018 8:25 am
After leaving a company years ago, I had a small sum in a company pension that I left in place just for the hell of it. I'm shifting our finances to payouts, and must soon decide whether to get a lump sum (probably to put in TIRA) or activate the pension (about $1k/yr). The financial impacts are trivial or unknowable. My common sense tells me to simplify things, get a lump sum and be done with the paperwork forever. It sort of amuses me though, and does have a trivial diversification benefit and is federally insured. My question: The tasks I know this creates are another 1099-R each year, making sure the checks go to the correct bank account if we change banks, and executors know how to notify them of deaths. Are there any other tax or bookkeeping effects of company pensions that are different from a TIRA or SPIA that we'd not want to bother with for the rest of our lives?
I think you covered the basics. You may also have to deal with survivorship paperwork. I would probably keep the pension even at $1k, but I already do a ton of paperwork so this is nothing to me and i tend to pinch every penny, but I can understand why you would want to simplify so either way it is probably fine. Generally the numbers work out in favor of keeping it when I run the calcs if you assume pension fund solvency. If you are close to retirement age and the pension is adequately funded, than I would probably feel comfortable taking that risk. I assume by "federally insured" you mean covered by PBGC. In such cases, it is important to remember that it is definitely not "ensured", fully "insured", or "guaranteed" despite the use of those words.

123
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Re: Pension vs. TIRA paperwork

Post by 123 » Fri Aug 10, 2018 9:02 pm

Most company pension lump sum calculations use interest rates that are published by the IRS for certain immediate, intermediate, and long term time periods. Those rates are going up with interest rates generally. What that may mean is that the lump sum payout alternative is DECLINING as interest rates rise. These lump sun payouts can get reset monthly, quarterly, or annually, it all depends on your plan. The lump sum can change even though the monthly benefit remains unchanged (except for your age). So don't delay in requesting a current calculation of your alternatives.

Edited to add:
An individual might think that they'll wait until the the pension plans full retirement age and then get the maximum lump sum alternative. That is not necessarily the case. A person could get a higher lump sum at a younger age, it depends on the interest rates that are applied at the time the pension/lump sum election is made.
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delamer
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Re: Pension vs. TIRA paperwork

Post by delamer » Fri Aug 10, 2018 9:59 pm

As far as taxes are concerned, the pension is a fixed dollar amount that you’ll pay taxes on each year. No way to get around that.

With the lump sum, you’ll have more flexibility to determine when you withdraw (at least until RMDs kick in) and could even do a Roth conversion.

But maybe the amounts are small enough not to worry about the above?

Grt2bOutdoors
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Re: Pension vs. TIRA paperwork

Post by Grt2bOutdoors » Sat Aug 11, 2018 1:30 am

Before making a decision, compare the projected lump sum payout with what it would cost to purchase a single premium immediate annuity at www.immediateannuities.com. If the lump sum invested in an SPIA would provide you with an annual payout greater than $1k, by all means take the lump sum. Otherwise, if you don’t need the income, you could take the lump sum.
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gd
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Location: MA, USA

Re: Pension vs. TIRA paperwork

Post by gd » Sat Aug 11, 2018 6:34 am

The amounts are small, likely differences due to interest rates & timing, annuity costs, longevity and such are trivial. I have no experience with pensions or IRA withdrawals and am trying to decide which paperwork path I want to commit to for the duration of my and my spouse's lives. Sounds like no surprises. Thanks all.

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