Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Pension survivor benefits
Old 12-04-2017, 10:37 AM   #1
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 4,180
Pension survivor benefits

My father passed away and his pension goes to my mother as a single life annuity, according to the papers from his former employer.

There is also a lump sum death benefit.

There is a Pension Rollover Election Form which has 3 options:

1. Taxable distribution paid directly to the survivor
2. Direct Rollover of the taxable portion of the distribution to an IRA or an employer-sponsored retirement account.
3. Partial Direct Rollover of the Taxable Portion of the distribution.

I guess the main advantage of rolling it over to an IRA is to defer taxes?

But my mother is 83 and already taking RMDs from her IRA, so even if she pays taxes now at least she'll have that money to use now.

Otherwise, her IRA will grow and that just means leaving more money for her heirs (actually there is a family trust).

Has anyone encountered this kind of a situation, a pension being inherited by a survivor (spouse) and then having to choose whether to roll it over to an IRA or take the money directly?

My father was taking the payments directly, though it was just a small part of their income so it didn't affect their lives much.
__________________

explanade is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-04-2017, 10:43 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,476
Is the lump sum in lieu of continuing benefit payments? If so, then the best answer depends on your mom's health and expected longevity, the relationship of the monthly payments to the lump sum compared to SPIA pricing, whether the benefits are COLAed, etc.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 12-04-2017, 10:43 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 5,064
the rollover is only for the lump sum death benefit, right?

those are typically modest and used to cover burial expenses.
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 12-04-2017, 10:44 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 5,064
Quote:
Originally Posted by pb4uski View Post
Is the lump sum in lieu of continuing benefit payments? If so, then the best answer depends on your mom's health and expected longevity, the relationship of the monthly payments to the lump sum compared to SPIA pricing, whether the benefits are COLAed, etc.
I'd be shocked if the lump sum is based on the survivor annuity.
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 12-04-2017, 10:56 AM   #5
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 4,180
Lump sum is called a "death benefit."
explanade is offline   Reply With Quote
Old 12-04-2017, 04:40 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,143
How much is the "death benefit" ?

These choices might be a silly choice if the amount is small.
Sunset is offline   Reply With Quote
Old 12-04-2017, 07:08 PM   #7
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 4,180
Low 5 figures.
explanade is offline   Reply With Quote
Old 12-04-2017, 10:12 PM   #8
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 712
My pension has several features. There is a life insurance element that will pay out something like $45,000 when I die. There is also a 75% survivor's benefit pension for my wife, should she outlive me. It is possible that OP's situation is similar, but with the option of a lump sum instead of an annuity.

I had to choose from several options at the time of retirement as to how the pension would work. No survivor benefit, 75%, or 60%. Obviously, the amount of the benefit would change accordingly. Next, SS offset or not. With the offset, the pension would pay more until age 62, then less (such that if you took SS at age 62, it would be a near constant payment). With no offset it was the same amount until you expired.
__________________
In alcohol's defense- I've made some pretty bad decisions while completely sober.
Clone is offline   Reply With Quote
Old 12-04-2017, 10:17 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,476
Quote:
Originally Posted by explanade View Post
Low 5 figures.
Then why fret... seems all decisions are ok and none are particularly advantageous.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 12-04-2017, 10:33 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,143
I would go for #2 Direct Rollover of the taxable portion of the distribution to an IRA

This way even if the amount is low, it can be chosen when to take it out, maybe there is a small tax savings by spreading it over 2 or 4 years vs an all at once payment.
Sunset is offline   Reply With Quote
Old 12-04-2017, 11:13 PM   #11
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 4,180
My parents were taking RMDs from their IRAs.

They were not going to exhaust those IRA balances by taking RMDs.

I understand they can withdraw more but they'd obviously pay more in taxes?

Or maybe roll it over to IRA and spend after-tax funds with the expectation that the IRA balances will go to the beneficiaries and with estate taxes and step up basis, the heirs get it tax free?

Or do the estate tax and step-up basis laws not apply to retirement accounts like IRAs?
explanade is offline   Reply With Quote
Old 12-04-2017, 11:31 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,143
I believe step-up basis only applies to things outside tax-sheltered accounts, so IRA's would not step up as there is no basis involved in IRA withdrawals (although there is a pre-tax and post-tax issue).

My thinking had been, lets pretend the RMD took them to within $5K of the top of the 15% tax bracket. The lump sum is $20K.
If they do RMD + lump sum then $15K of the lump sum is taxed at 25%.

If the lumpsum was dropped into an IRA, then they took out the normal RMD +$5K more for four years it would always be taxed at 15%.

This is a total saving of $1,500

This idea only works if they are near a higher tax bracket.
__________________

Sunset is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
social security retirement disability - survivor's benefits engr FIRE and Money 3 05-31-2011 08:29 PM
Need advice for survivor SS benefits freebird5825 Other topics 12 09-23-2009 01:33 PM
Pension Survivor benefits 5j404 FIRE and Money 8 02-27-2006 05:03 PM
MOVED: Pension Survivor benefits Martha Hi, I am... 0 02-26-2006 05:42 AM
SS survivor benefits newellcr Young Dreamers 3 10-16-2004 05:48 AM

» Quick Links

 
All times are GMT -6. The time now is 06:23 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.