What Is A Lump Sum Pension Rollover?

Retirement is near and now you must decide what to do with your 401k retirement plan and pension benefit accounts. The 401k can directly transfer into an IRA rollover account. There you may establish a monthly paycheck, complete with tax withholdings which are automatically sent to the IRS and state tax agencies.

You have the same option with your pension benefit!

Rather than beginning monthly payments from your pension, you may elect to take a lump-sum distribution sometimes identified simply as the lump-sum. Under many investment scenarios, you may have more retirement income and leave more to your heirs by taking a lump-sum distribution (a rollover) which can then be deposited into an IRA account to avoid immediate taxation and possibly early withdrawal penalties.

Electing to receive payments instead the a lump-sum is generally an irrevocable decision. Because the lump-sum represents the present value of your pension benefit, payments are usually fixed after they begin. Imagine 10 years into retirement and you are receiving the same dollar amount per month, only now it buys 30% less groceries, gas, and medicine than the day you started.

While you generally won’t accrue any further benefit from your pension, the cost of living will continue to increase. This is the silent lifestyle killer—a steady whittling away of your hard earned retirement benefits—and arguably more detrimental than any temporary market declines you may experience in retirement.

Note: you can combine your 401k and pension rollover into one account, but we generally suggest separate accounts for each.

About the author

Eric J. McClain, CFP®

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