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Lump sum pension distribution tax liability

 
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alto100



Joined: 29 Oct 2008
Posts: 3
PostPosted: Wed Oct 29, 2008 9:56 pm    Post subject: Lump sum pension distribution tax liability Reply with quote
I'm being laid off from my Wall St. job of almost 20yrs. in a couple weeks (How unheard of!). I have an old pension they stopped funding about 10yrs. ago then they switched to 401K. I don't trust this company to be in business to deliver all my payments to me so I'm planning to take the lump sum distribution. It's about $89K. Now I'm realizing there may be tax implications. I tried reading the IRS webpage but went up the richter scale trying to follow their convoluted jargon and mostly traps to take my money Evil or Very Mad

If I roll the whole thing over into an IRA will I be spared any tax liability today? I'm 56 and don't plan on withdrawing until 59 1/2.

Thanks,
Frank
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admin
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Joined: 06 Feb 2004
Posts: 138
PostPosted: Wed Oct 29, 2008 10:16 pm    Post subject: Re: Lump sum pension distribution tax liability Reply with quote
alto100 wrote:
I'm being laid off from my Wall St. job of almost 20yrs. in a couple weeks (How unheard of!). I have an old pension they stopped funding about 10yrs. ago then they switched to 401K. I don't trust this company to be in business to deliver all my payments to me so I'm planning to take the lump sum distribution. It's about $89K. Now I'm realizing there may be tax implications. I tried reading the IRS webpage but went up the richter scale trying to follow their convoluted jargon and mostly traps to take my money Evil or Very Mad

If I roll the whole thing over into an IRA will I be spared any tax liability today? I'm 56 and don't plan on withdrawing until 59 1/2.

Thanks,
Frank


Yes. If you roll over the 401k to an IRA you won't pay taxes until you withdraw the money from the IRA at some time in the future.

One thing to watch: If the 401k contains any company stock from your employer that has appreciated over the years, it may make sense to distribute the stock to a taxable account rather than an IRA. See link:

http://www.fool.com/retirement/manageretirement/manageretirement4.htm

intercst
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alto100



Joined: 29 Oct 2008
Posts: 3
PostPosted: Wed Oct 29, 2008 11:07 pm    Post subject: Re: Lump sum pension distribution tax liability Reply with quote
admin wrote:
alto100 wrote:
I'm being laid off from my Wall St. job of almost 20yrs. in a couple weeks (How unheard of!). I have an old pension they stopped funding about 10yrs. ago then they switched to 401K. I don't trust this company to be in business to deliver all my payments to me so I'm planning to take the lump sum distribution. It's about $89K. Now I'm realizing there may be tax implications. I tried reading the IRS webpage but went up the richter scale trying to follow their convoluted jargon and mostly traps to take my money Evil or Very Mad

If I roll the whole thing over into an IRA will I be spared any tax liability today? I'm 56 and don't plan on withdrawing until 59 1/2.

Thanks,
Frank


Yes. If you roll over the 401k to an IRA you won't pay taxes until you withdraw the money from the IRA at some time in the future.

One thing to watch: If the 401k contains any company stock from your employer that has appreciated over the years, it may make sense to distribute the stock to a taxable account rather than an IRA. See link:

http://www.fool.com/retirement/manageretirement/manageretirement4.htm

intercst


The pension distribution is not in the 401K. It will come along separately but the intention is to put that in the IRA with the 401K. I'll still be spared any tax liability?

Thanks for the link. There is about 25K shares of company stock in the 401K. Good lord, will the employer be able to tell me the cost basis of all these shares?!!! My head hurts. I'll be selling at a loss anyway and rolling the cash over. The time to hold financials is long gone I'm afraid.
Frank
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