Expert: Allen - 1/7/2009

Question
I am 65.8months. My plan allow's lump sum pay out. What taxes and/or penalties will i have to pay to do this. The total vested balance as of January 1,2009 is $4,235.63. The monthly payment amount would be $75.83. I could pay off my credit card and save a lot of interest by doing so with the lump payment. What is your advise?

Answer
You will have to pay federal and state income tax on any money you receive. The tax will be calculated the same way tax is calculated on salary.

Unfortunately, I can't tell you which option to elect. From an actuarial point of view, the monthly payment is a far better deal than the single sum. However, paying off credit card bills may override this.