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Hi, I'm Kat and I'm planning to retire in July '09
Old 02-28-2009, 04:42 PM   #1
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Hi, I'm Kat and I'm planning to retire in July '09

I'm happy to find myself among like-minded souls. Thanks in advance for whatever advice you may offer.
I live in Southern California, am married with grown children. and am turning 55 on March 8th, 2009. My husband will be 52 in May. I have a tax question about rolling my pension (not my 401k), into a single immediate 5-yr annuity. This is the first piece of my retirement strategy and I want to avoid paying the 20% federal withholding for personal withdrawals and the 10% tax for under 59-1/2. Will rolling this money directly into an immediate annuity do that? Do I have to roll the money into an IRA first and then purchase the annuity or should I be able to roll it directly into an immediate annuity without either of those taxes applying? Thanks to anyone and everyone who takes the time to reply.
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Old 02-28-2009, 04:53 PM   #2
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Kat, Welcome! I'm sure you will receive some opinions on annuities from those much more knowledgeable than I am. I'd just like to say you are among like minded souls and, being a cat fancier, I do love your name
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Old 02-28-2009, 05:14 PM   #3
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You may want to check the info on your pension lump sum again. It may be that you do not have to pay a 10% penalty since you are 55.

In my DH's situation, since he will be 55 this year, the penalty does not apply. We are still in the process of looking over investment directions as well.

Welcome to the forum.....
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Old 02-28-2009, 05:51 PM   #4
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Hello Kat and welcome aboard! I do not know the technical info you are looking for but I can recommend Ed Slott's IRA Forum and the Fairmark Forum. These two are pretty much the Holy Grail for your questions. The both have extensive bulletin boards and will respond to new inquiries.
Fairmark Forum
irahelp.com Ed Slott America's IRA Expert
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Old 02-28-2009, 05:55 PM   #5
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Welcome Kat - I don't know anything about rolling a "pension" into an annuity or IRA - but there is a way to avoid the 10% penalty on IRA withdrawals before age 59.5 - a 72t plan

Here's a link to some info on those: Welcome to 72t on the Net

Some others on this forum may be able to fill you in on the details of those.
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Old 02-28-2009, 06:03 PM   #6
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Quote:
Originally Posted by pellizzeri View Post
I'm happy to find myself among like-minded souls. Thanks in advance for whatever advice you may offer.
I live in Southern California, am married with grown children. and am turning 55 on March 8th, 2009. My husband will be 52 in May. I have a tax question about rolling my pension (not my 401k), into a single immediate 5-yr annuity. This is the first piece of my retirement strategy and I want to avoid paying the 20% federal withholding for personal withdrawals and the 10% tax for under 59-1/2. Will rolling this money directly into an immediate annuity do that? Do I have to roll the money into an IRA first and then purchase the annuity or should I be able to roll it directly into an immediate annuity without either of those taxes applying? Thanks to anyone and everyone who takes the time to reply.
Welcome to ER.

There are ways to avoid the 10% tax.

There is much to learn and many to help.
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I THOUGHT I was getting closer
Old 03-01-2009, 03:26 PM   #7
Confused about dryer sheets
 
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I THOUGHT I was getting closer

I had come to the conclusion that the 5pc immediate annuity I plan to buy with my pension was going to be subject to the 10% penalty tax (turning 55 and retiring this year & "roughly equal payments" are too little $), when I read this on Immediate Annuities - Instant Annuity Quote Calculator. "If you are 55 and your pension plan buys the period certain annuity for you, you may avoid the 10% penalty." Now I'm back to trying to figure out if this is true, and if it is, how it works. (The light of hope flickers once again...)
p.s. Thanks to Crazy Connie for recommending the Fairmark Forum. It was helpful.
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Old 03-01-2009, 06:16 PM   #8
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Another item that may make a big diff is taxes. If your husband is employed and you drop your income often the tax reduction is immense. Noodle that for a bit Kat. Also, if the 72T will not work, know that the amount (not starting now) will be going up when intrest rates increase. That may be late this year or after the the start of 2010. Can you go back to work somewhere for a while? Do you have a 401K? If so, that can frequently be accessed if you sever employment during the year you turn 55 from the employer.

Glad you enjoyed the Fairmark Forum. It has a great bunch of CPA's hanging out there and if someone misquotes guidance several more chime in to correct.
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Will work... if I need to
Old 03-01-2009, 11:48 PM   #9
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Will work... if I need to

Yes, I have a 401k (that needs time to recover), and can work if I need to, but I prefer to retain that as an option, not a necessity. I also know my budget will be able accommodate the 10% tax, if it needs to--I just don't want to pay it, if I can find a legal way around it. Thanks again for the thoughtful suggestions and advice, though. This is a very helpful crowd
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Old 03-02-2009, 09:47 AM   #10
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Yes, I have a 401k (that needs time to recover), and can work if I need to, but I prefer to retain that as an option, not a necessity. I also know my budget will be able accommodate the 10% tax, if it needs to--I just don't want to pay it, if I can find a legal way around it. Thanks again for the thoughtful suggestions and advice, though. This is a very helpful crowd
There are a couple ways to avoid the 10% penalty. I retired at 52 and started taking "regular monthly withdrawals" from my 401k. Don't know the legal mumbo-jumbo but I know you can do this. If you have a tax person, just ask them. Also, there is a IRS publication on this subject.
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401k withdrawals
Old 03-02-2009, 10:08 AM   #11
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401k withdrawals

I read that distributions directly from an employee's 401K were exempt from the tax, unfortunately my plan does not allow partial distributions of its 401K, so that's not an option that will be available to me.
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Old 03-02-2009, 11:11 AM   #12
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Welcome to the board. You may want to start your research here: http://www.irs.gov/pub/irs-pdf/p575.pdf
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Old 03-02-2009, 12:51 PM   #13
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Yes, I read through most of that publication yesterday and learned a lot. I'm beginning to think I need to change my strategy and roll both my 401k and my pension into an IRA and then take 72(t) payments for 5 years. That may require me to work a little during the next few years, but not much; and more importantly, it allows me to avoid the 10% penalty, which I've been trying so hard to do. Does anyone have a company that they'd recommend, for whatever reason, with which I should set up my rollover IRA and 72(t)?
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Old 03-02-2009, 06:41 PM   #14
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Originally Posted by pellizzeri View Post
Yes, I read through most of that publication yesterday and learned a lot. I'm beginning to think I need to change my strategy and roll both my 401k and my pension into an IRA and then take 72(t) payments for 5 years. That may require me to work a little during the next few years, but not much; and more importantly, it allows me to avoid the 10% penalty, which I've been trying so hard to do. Does anyone have a company that they'd recommend, for whatever reason, with which I should set up my rollover IRA and 72(t)?
Fidelity investments. They handle all the pensions and 401k investments for General Motors employes and retirees. They have great communication skills. I'm sure there are others out there but I am just tossing out their name.
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Comparing companies
Old 03-03-2009, 09:43 AM   #15
Confused about dryer sheets
 
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Comparing companies

Yes, I've been comparing websites for a variety of providers and Fidelity has an edge. It's easy to navigate, has lots of clear information and appears to let you do most of what you'd want to do with an IRA online, which is important to me. Thanks for pointing me their way.
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Old 03-03-2009, 10:50 AM   #16
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Quote:
Originally Posted by pellizzeri View Post
Yes, I read through most of that publication yesterday and learned a lot. I'm beginning to think I need to change my strategy and roll both my 401k and my pension into an IRA and then take 72(t) payments for 5 years. That may require me to work a little during the next few years, but not much; and more importantly, it allows me to avoid the 10% penalty, which I've been trying so hard to do. Does anyone have a company that they'd recommend, for whatever reason, with which I should set up my rollover IRA and 72(t)?
Hi Kat!

Welcome to the board,

I retired early last year. I did a direct rollover of both my 401k and the lump sum amount from my company pension to an IRA. Then from there I used a portion of the IRA to open up an annuity. Yes, this allowed me to avoid the 10% penalty.

In my situation, I had already had an IRA with Vanguard, but that was 100% in the stock market. So I had them open up a Money Market IRA to hold the direct rollovers before I applied for the annuity. Vanguard (as I'm sure other companies would be too) was very helpful with the process.

Best of luck!
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Old 03-04-2009, 04:40 PM   #17
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I looked into this question and found you can draw from your company 401K (but not IRA!) without a penalty as long as you retire in the year you turn 55, which applies to you.
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Old 03-04-2009, 07:29 PM   #18
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I looked into this question and found you can draw from your company 401K (but not IRA!) without a penalty as long as you retire in the year you turn 55, which applies to you.
For those of you that may be in the situation like I was, the IRS will allow you to take regular monthly withdrawals from your 401k providing you have permanently separated employment (retired) regardless of your age. I have a letter from the IRS regarding this. I started withdrawals when I was 53.
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401k withdrawals
Old 03-04-2009, 08:12 PM   #19
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401k withdrawals

Yes, the only part that's missing from what you wrote is that your company has to be willing to make partial distributions from your 401k. Mine is not--it's all or nothing with them. The bums.
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Old 03-04-2009, 08:50 PM   #20
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In my situation, I did a direct transfers of both my 401K and pension to an IRA, then used a part of the new IRA total to open the annuity. I'm less than 50 years old. My annuity is a lifetime one, so that automatically did equal portions for life for me, to avoid the early withdrawal penalty.
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