AboutAllen Expertise Pension questions ONLY. Pension, profit sharing, and 401(k) plan design, installation, administration and actuarial services; rollovers to Individual Retirement Accounts; taxation of retirement plan distributions
Experience Over 35years experience in the pension field
Organizations Various actuarial organizations
Education/Credentials MBA and various professional certifications
Expert: Allen Date: 4/27/2008 Subject: Rollover Lump Sum to IRA?
Question I am 65 and retiring. I have the option of getting a $135000 lump sum pension, or $935/mo. I am opting for the lump sum, only if I can rollover to my traditional IRA. Can this be done so I can defer my tax liabilty on the money?
Any reason to rollover to a Roth instead?
Thanks,
Wayne
Answer Several comments:
1. You can rollover to your traditional IRA. However, to avoid tax withholding, you need to tell the trustee for the plan to send the money directly to the trustee for your IRA. You will defer tax liability until you withdraw money from the IRA.
2. You should reconsider your decision about the pension. The monthly pension is very reasonable based on the amount of the lump sum. If you are married you should also get figures for what is known as a joint and survivor annuity which pays as long as either you ar your wife lives.
3. If you take the lump sum and rollover to your IRA, you can consider transferring assets from the traditional IRA to a Roth IRA. There are a number of considerations. First, you have to be eligible to make the transfer. For 2008 and 2009 you can only do this if your adjusted taxable income is less than $100,000. In 2010 you can convert no matter how high your income. Second, you will have to pay tax on the amount that is transferred to the Roth IRA. However you will not pay tax on money when it is withdrawn from the Roth. Third the key consideration is your tax bracket the year you make the conversion and your tax bracket when you withdraw money from the IRA. If your future tax bracket will be lower than now, it does not make sense to transfer to the Roth. On the other hand if your future tax bracket will be higher than now, it does make sense to convert. You can get more info by doing an internet search on Roth IRAs.
