Expert: Shirley McAllister, CPP, PHR - 5/26/2011

Question
Our pension plan will be terminated as of year-end and one of the available options will be a lump sum payment.  I am a 55-year old woman so if I took a lump sum payment, I would have to pay 20% tax plus 10% penalty.  My husband is terminally ill.  I know that if I were the one permanently disabled, I could take the lump sum without penalty.  My question is, is there anyway I can take the lump sum payment without penalty because of my husband's health.  His disease is progressive and I would like to have funds available for his care. Thank you very much for any advice you can give me.

Answer
I would suggest to you that you do not take a lump sum payment. You need to roll the amount over to an IRA at a bank or other financial institution. Make sure you can withdraw the amount when needed some IRA's are easier to withdraw from than others. Check around and find one that has terms you can live with.

If you take a lump sum you will have to pay the tax and the penalty. If you take a hardship withdrawal now before the plan terminates you will have to pay the taxes but not the penalty. You do not have to pay the penalty on a hardship withdrawal. You should be allowed to take a hardship withdrawal to pay expenses related to your husband's condition. Take what is allowed under the harship withdrawal now and than roll the difference over into an IRA.

Shirley