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answers for my pension fund
Old 07-23-2019, 02:51 PM   #1
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answers for my pension fund

hello,thank you for taking time to read my concerns.
I 51 and bee disable for a year an of now i get social security disability,the place i worked for 19 years before i became sick and disable have a 401A pension plan for their employees.this plan only allowed the employer to make contributions to the i still have the money at Prudential(have not done any move yet),i am disable and would like to get the money from plan without been heavily tax.i do know i could wait until i am 59 1/2 years old and avoid the extra 10% tax penalty.but with my health i do not know if i will have 9 years more of life,maybe?.I was wondering if i move my pension money to a IRA account ,will i have tax withheld after the roll over?will i have to claim the money as an income in my yearly income tax return?

Any help is welcome.thanks

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Old 07-23-2019, 03:23 PM   #2
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If you do a 'direct rollover' to an IRA, you never receive the funds directly (they are transferred from one institution to another), so no taxes will need to be withheld or paid, and you won't owe any taxes on them. You can contact the receiving institution (most here would go with Fidelity or Vanguard), open an account, and they will start the rollover process with you.

If you need money from the funds now, you can have establish a SEPP under IRS Rule 72t. This stands for Substantially Equal Periodic Payments. They will be approximately equal every year, and will be based on the RMD concept. You should get help doing this, as if you do it wrong, there are penalties far greater than 10%. Based on your current age, you'd only be able to take (1/your life expectancy), or about 1/22 per year if you use this method.

On the other hand, if you need more money now, and really don't think there's a possibility of you living beyond 10 years or so, you could pay the taxes and 10% penalties on each year's distribution after moving the money to a low-cost house like Fidelity or Vanguard.

Balance in everything.
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Old 07-23-2019, 03:54 PM   #3
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There is a disability exemption for IRA 10% penalty. From the IRS:
You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.
Disclaimer: I found this in a search, you should do your own research and ask for professional help in understanding this.
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Old 07-23-2019, 03:59 PM   #4
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Good webpage on the above:

...How the IRS's Definition Compares to Other Definitions

The IRS's definition is very similar to Social Security's definition of disability – which also requires the inability to do substantial work -- except that Social requires your inability to work to last just one year. Therefore, having been found disabled for Social Security disability or SSI purposes does not guarantee the IRS will allow you to use the disability exception to the 10% penalty, but it can help, particularly if Social Security has classified your condition as "Medical Improvement Not Expected (MINE)." If, when your initial award letter came from Social Security, it said your case would be reviewed in five to seven years, you were classified as MINE.

The IRS's definition of permanent and total disability is also similar to the Veterans Administration (VA) rating for a veteran who has been deemed 100% disabled "based upon individual unemployability" (TDIU). But again, having a 100% TDIU rating does not force the IRS to find you eligible for the exception to the early distribution tax.

The definitions of disabled found in most long-term disability (LTD) plans are a bit different. Many LTD plans find you disabled if you are unable to do your own occupation. Obviously, the IRS's definition of disability is much harder to meet than this definition. However, if your LTD insurance provider has found you unable to do "any occupation," rather than just your own occupation, it's more likely you would be found disabled by the IRS. ...
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