Expert: Allen - 4/8/2007

Question
I am vested at my company and leaving for another job. I have both a 401K
pension which I am planning to roll into an IRA, but I also have a traditional
Pension called a Pension Equity Plan which is fully funded by the company that I
get when I leave. I know these types of pensions are rare these days, and I am
unsure what the penalties are if I decide to cash it out.  

Answer
If you receive the money (rather than rolling it over to an IRA) it is subject to federal and state income tax. In most cases the tax is calculated the same way as the tax on salary.

In most cases, if you receive a distribution before you are 59 1/2 years old, it is also subject to a 10% federal excise tax.

If at all possible, I would either delay distribution or have it rolled over to an IRA.