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You are here: Experts > People/Relationships > Retirement Planning > Accounting, Payroll & Pension Issues > Pension Rollover
Expert: Allen - 10/30/2009
Question
My company allows monthly pension payout for 3 years, 4 years etc up to 10 years or life annuity. If I chose 3 years monthly payout, but I don't need the money now. Can I rollover the monthly pension check to an IRA? If rollover allows, can I stop rollover during 3 yr period if my financial situation changes?
Answer
The money can be rolled over if you elect a payout period of less than 10 years. You can also choose to roll over some payments and not rollover other payments.
One problem with doing this is that you will have to come up with outside funds if you want to avoid taxes. Let's say the gross monthly payment is $10,000. The plan will withhold 20% for federal income tax (or more if you elect a larger percentage) and possibly some anmount for state income tax (depending on the state you live in). Therefore you will only receive a check for $8,000 (or possibly less). If you rollover the $8,000, the other $2,000 will be considered a taxable distribution. So in order to avoid paying taxes you will have to come up with the additional $2,000 from other sources.
Any amount that is taxable will be subject to federal income tax, state income tax (depending on where you live) and under most circumstances a 10% excise tax if you are less than 59 1/2 years old. (The 20% that is withheld for federal income tax is not the amount that will be due. It is only an estimate and the actual taxes may be more or less depending on your total taxable income for the year.) To make things easier for you, I would recommend having all payment rolled over directly rather than you receiving a check. If you need cash, you can take it from the IRA and pay the taxes then.
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