Expert: Allen - 8/25/2006

Question
I am currently 55 and immediately eligible for a lump sum distribution of my company's pension plan. I need to know if there are any "gotcha's" between rolling over the pension into that same companies' (pre-tax) 401k plan or into a separate IRA. I'm particularly concerned about any tax consequences of aggregating the pension and 401k; and whether this will limit any opportunities in the future, like rolling it again into another employer's 401k plan.  

Answer
The most important criteria for a decision is how you want to invest the money from the pension plan. If you like the choices offered in the 401k, then rollover to this plan is probably the most advisable alternative. If you want to diversify and use other investments, then IRA rollover is the better alternative.

As far as gotchas, the only toughts I have:
1. If your taxable income is low enough, you might consider a Roth IRA instead of a regular IRA.
2. There may be some limitations on distributions from the 401k. Check with the plan administrator.
3. If you retire before 59 1/2, need the money, and you satisfy the requirements for retirement under the 401k plan (not for a distribution but for retirement), then you can avoid the 10% penaltiy on distributions before 59 1/2. This option is not available with an IRA.