Originally Posted by Katsmeow
Why is there a lump-sum tax hit?
Hi Kat -- There would be a hit because I want access to my pension money now, while I'm younger than 59 1/2, to fund early retirement. I could roll it over to an IRA without a penalty but then it would still be locked up for the next 5 years. Annuity payments have no IRS penalty and also are excluded from state and local taxes here.
Also, the lump sum is growing at a rate of 4.5% pa compounded monthly as long as it sits in the account. While I could beat that over the long run, I think it's a decent short-term return, so I'm happy to let them keep it until I need it next year or whenever DH retires.