Should I take a lump sum pension distribution?

Question

Because my accrued benefit amount is less than $20,000 I have been offered a lump sum distribution. How secure is the future of a major and financially stable company's pension plan in this day and age? I am in my 30s so will not be eligible for monthly pension payout until 2038. Are there tax implications and what is the best option for the funds if I do take a distribution today?

Answer 1

If you have enough self-control to not spend it, I personally think it's a better deal to take the lump sum as a direct rollover into an IRA, then invest the money in a small-company stock mutual fund or an exchange-traded fund (ETF) like the ones with ticker symbol IWM or IWN. The company likely invests the money in something very safe with a low return. Over long time periods, stocks have historically had the highest returns of any asset class, so with 30 years to go, you're highly likely to get a much better return with stocks.

If you do a direct rollover (the company sends the money directly to your mutual fund company or stockbroker), my understanding is that there is no current tax effect.

To invest in a mutual fund IRA, you will need an IRA account at a mutual fund company like American Century, T. Rowe Price, Fidelity, Vanguard, etc.

To invest in an ETF, you will need an IRA account at a stockbroker. I would use a discount broker like TD Ameritrade, E*Trade, Scottrade, etc.

Answer 2

Go to the Fidelity website...get the number of a rep...they can put you in a " rollover" IRA.... your choice, a ROTH ( and you pay tax on the transferred money)...or a Traditional ( no taxes taken out, now, but you pay tax as " income" when you start withdrawing)
Been there... done that ! Selected some nice mutual funds...let them work for a few years.. now I move them around and buy some stocks here and there all on- line.
Just a suggestion...go the " traditional" route ( hate to see a big sum go to Uncle Sam like that) but take out a ROTH IRA and add to it every year...for that tax free income down the road.
( you can also move your funds or trade stocks in that IRA account...on-line.)
Choose Fidelity or anyone else, but DO IT...they will handle everything in such a way that you will NOT be responsible for taxes.
Good luck.
P.S. Don't let the " selecting funds" or "trading stocks" talk make you shy away... if you know nothing about it you can learn ... a zillion people are managing their own funds ( and futures) its easy once your into it.
P.P.S. ... and there are even funds designed for folks who just pick a " retirement date" and let the fund managers do the selecting and moving as you get older.

Answer 3

relies upon on your plan. i think mine enables a partial lump sum right this moment with month-to-month distribution after. that's spelled out how lots you are able to arise front and what the annuity is after that.

Answer 4

Talk to the investment arm of the bank you deal with for their opinion before you do anything.

Please don't listen to advice here if you don't know about investments.

And if you don't have a plan to invest this money, you will spend it, and it will be gone for good

Answer 5

TAKE IT! YOU COULD ROLL IT INTO AN IRA. PLEASE SPEAK WITH A QUALIFIED CPA.
THIS WAY YOU CAN CONTROL HOW THE MONEY IS INVESTED.