• Question
  • Pension Buyout Rollover to Roth

    Asked by a 58 year old woman from Morrow, OH on 12/4/2017

    I was happy to receive a letter offering me a pension buyout from a former employer. I did not realize I had a pension from them! Very nice surprise. The form said I could have the $$ put into a Roth which is what I opted to do. I received th check today payable to my financial institution. They did not take any tax out. So ... I assume that Uncle Sam is going to want some cash from my windfall. Do I send a check now or wait until I do my 2017 taxes by April 2018? If I must pay now, what IRS form do I use? I looked at the gov site but it seemed to be about IRA conversions, not a pension conversion.

    By the way, I am an early retiree, now 57 years old and loving retirement!

    Thanks for any help you can provide!

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  • Categories: Taxes, Retirement Planning

Answers

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  • Hi,

    Glad you are enjoying retirement :-)

    Did the pension administrator give you the option to do a do a rollover into a tax qualified account vs. a ROTH IRA?

    The IRS provides for different kinds of treatment for lump sum pay pension payouts https://www.irs.gov/taxtopics/tc412

    If the amount of money is significant and may result in a material tax event for you - you should consult with a tax expert on this.

    We also have a pretty detailed article on our site about the pension lump sum vs payout option considerations https://www.newretirement.com/answers/bud-hebeler/lump-sum-vs-pension.aspx

    You can model some of this in our Retirement Planning tool including putting the money into a Roth - just click "Get Started" on our home page: https://www.newretirement.com/

    You may want to consult with a financial planning and tax expert on this - since you have immediate and long term tax and and investment return impacts from this decision - you can reach out to an expert by clicking "Get Expert Help" on this page: https://www.newretirement.com/retirement-calculator/retirement-planning-options.aspx

  • Login to rate this answer:   Answered on 3/5/2018
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.