Pension choices - What is best for my tax scenario
Pension choices - What is best for my tax scenario... Lump Sum, Monthly, Rollover?
Mary had worked at a large employer for over 30 years and was nearing retirement. She had a pension plan with her employer and upon separating from service, had to tell them how she wanted to take her distribution. Mary had 2 options to consider. One option was to establish a distribution plan directly from her employer, based on various assumptions. The second option was to roll the payment over into a qualified IRA.
While meeting with Mary, we learned that her husband was still employed, and they did not need additional income at the time Mary planned to leave her job. Mary’s decision was to rollover those funds to a qualified IRA. This gave her until she turned 72 to take distributions, however, she would have money available to her, without penalty, at age 59 1/2 if needed. This strategy provided her with tax control over the funds based on when the funds are used, rather than obtaining the funds when the additional income is not needed or being used.
*If you are considering rolling over money from an employer-sponsored plan, such as a 401(k) or 403(b), you may have the option of leaving the money in the current employer-sponsored plan or moving it into a new employer-sponsored plan. Benefits of leaving money in an employer-sponsored plan may include access to lower-cost institutional class shares; access to investment planning tools and other educational materials; the potential for penalty-free withdrawals starting at age 55; broader protection from creditors and legal judgments; and the ability to postpone required minimum distributions beyond age 72, under certain circumstances. If your employer-sponsored plan account holds significantly appreciated employer stock, you should carefully consider the negative tax implications of transferring the stock to an IRA against the risk of being overly concentrated in employer stock. You should also understand that Commonwealth and your financial advisor may earn commissions or advisory fees as a result of a rollover that may not otherwise be earned if you leave your plan assets in your old or a new employer-sponsored plan and that there may be account transfer, opening, and/or closing fees associated with a rollover. This list of considerations is not exhaustive. Your decision whether or not to roll over your assets from an employer-sponsored plan into an IRA should be discussed with your financial advisor and your tax professional.