Any Reason Not to Convert Defined Benefit Pension to IRA/401k?

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illumination
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Joined: Tue Apr 02, 2019 6:13 pm

Any Reason Not to Convert Defined Benefit Pension to IRA/401k?

Post by illumination » Tue Jun 11, 2019 3:44 pm

My father has adopted a more Boglehead approach to some things, and one thing he was exploring was converting his defined benefit pension that he created for his consulting business. He's in his mid seventies and currently taking RMDs, its just him and his spouse on it. He also has a separate 401k he still contributes to.

Once you are no longer in the stage of contributing to a pension like this but simply drawing down, is there any good reason to not convert it over? Any pitfalls to watch out for?

The whole purpose of it was to be able to contribute a lot more than you could in other types of retirement plans, but that purpose is now gone. He pays hefty fees to keep everything in compliance, something like $5,000 a year.

mchampse
Posts: 180
Joined: Mon Feb 26, 2007 1:45 am

Re: Any Reason Not to Convert Defined Benefit Pension to IRA/401k?

Post by mchampse » Tue Jun 11, 2019 11:48 pm

Can’t think of one. Certainly not something that would be worth $5,000 per year.

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Stinky
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Re: Any Reason Not to Convert Defined Benefit Pension to IRA/401k?

Post by Stinky » Wed Jun 12, 2019 8:06 am

illumination wrote:
Tue Jun 11, 2019 3:44 pm
My father has adopted a more Boglehead approach to some things, and one thing he was exploring was converting his defined benefit pension that he created for his consulting business. He's in his mid seventies and currently taking RMDs, its just him and his spouse on it. He also has a separate 401k he still contributes to.

Once you are no longer in the stage of contributing to a pension like this but simply drawing down, is there any good reason to not convert it over? Any pitfalls to watch out for?

The whole purpose of it was to be able to contribute a lot more than you could in other types of retirement plans, but that purpose is now gone. He pays hefty fees to keep everything in compliance, something like $5,000 a year.
Nothing comes to mind.

However, since I never practiced in this area, I would suggest retaining an advisor of some type - maybe from the firm that does the compliance work - to give your father a fully informed opinion. Even if the advice cost him $1,000, he would be ahead $4,000 for the year, and he would avoid the fees/penalties that could accrue from some inadvertent mis-step.

Let us know how this turns out for you and your father.
It's a GREAT day to be alive - Travis Tritt

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