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Pension buyout, IRA, Annuity, < age 59.5
Old 01-08-2015, 10:08 AM   #1
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Pension buyout, IRA, Annuity, < age 59.5

I ER'd in 2013 @ age 50 taking my Megacorp pension as an annuity (payments started immediately). I had the option of taking a lump-sum at that time, but I was comfortable enough, both emotionally and financially I guess , just going the old-school income for life route as I also have healthy 401k and personal savings/investments.
So now, my former employer has announced they will be making a buyout offer to ~50% of the retiree population in 2015.
My first question is, would the fact that I had already technically been given the opportunity when I retired, might preclude me from being offered this upcoming buyout? The lump sum option at retirement was a relatively new development. Those who retired > 5-10 years ago had no choice, the pension was only available as an annuity.
Regardless, IF the buyout offer is made to me and IF I decide it's reasonable, can I roll it into an IRA and IF I so choose at a later date, BUT STILL BEFORE age 59&1/2, transfer it to an immediate annuity without penalty?
I think the answer is yes, provided I purchase the annuity as a "life contingent" (fixed annuitization) payment option, it would be an exception to the early distribution/age 59.5 rule.
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Old 01-08-2015, 10:50 AM   #2
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As an ex-MegaMotors employee, I was offered a lump sum about 5 years after I retired and started taking payments. I could have taken the lump sum and rolled it into an IRA. I could not buy an immediate annuity with the same payout as the lump sum and I decided to stick with the monthly payout.


Quote:
Immediate Annuity

Distributions from IRAs before age 59 1/2 are subject to a 10 percent penalty, but an immediate annuity -- which begins regular payments when it is bought -- is exempt. The Internal Revenue Service treats distributions from such an annuity as tax-exempt periodic payments. Monthly payments from the annuity are taxed as regular income, but no penalty applies to the transfer. Payments must continue for at least five years or until the taxpayer is 59 1/2.
http://finance.zacks.com/there-tax-p...uity-5871.html
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Old 01-08-2015, 06:35 PM   #3
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The lump-sum payout should be rolled straight into your IRA to avoid tax. Your company will probably send you a check made payable to your IRA administrator "For Your Benefit". Once in the IRA you can do whatever you want with it.....buy an SPIA, mutual funds....whatever.

If you get the buy out do the maths to see if it's a good offer. Your company should use the IRS segmented interest rates to calculate the lump sum from your accrued benefit.
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Old 01-09-2015, 12:33 PM   #4
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Quote:
Originally Posted by DUFUS View Post
My first question is, would the fact that I had already technically been given the opportunity when I retired, might preclude me from being offered this upcoming buyout? The lump sum option at retirement was a relatively new development. Those who retired > 5-10 years ago had no choice, the pension was only available as an annuity.
Regardless, IF the buyout offer is made to me and IF I decide it's reasonable, can I roll it into an IRA and IF I so choose at a later date, BUT STILL BEFORE age 59&1/2, transfer it to an immediate annuity without penalty?
I think the answer is yes, provided I purchase the annuity as a "life contingent" (fixed annuitization) payment option, it would be an exception to the early distribution/age 59.5 rule.
answer to the first question is "no, it won't preclude you" otherwise it would DQ the plan (and they wouldn't offer it) - this is essentially treated as a "new" distribution option, you can actually elect another optional form of monthly payment if you want

not sure about the second question, I would need to do about 5 minutes of research
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Old 01-09-2015, 12:38 PM   #5
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If you get the buy out do the maths to see if it's a good offer. Your company should use the IRS segmented interest rates to calculate the lump sum from your accrued benefit.
he's not receiving his accrued benefit, he's receiving an early retirement (or term vested) benefit

accrued benefits are payable at NRD (usually 65 sometimes lower)

but yes, it seems like technically the lump sum must be at least equal to the AE of the the original accrued benefit - they may just be offering a lump sum based on an immediate annuity times an immediate annuity factor using the segment rates
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Old 01-09-2015, 12:40 PM   #6
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Every now and then a Megacorp's pension administrators screw up, too. Just before the new year I got a call from the service center for my Megacorp-1 pension plan. I actually have two separate pensions there based on different type of service. One of them is a bit larger (though not large) and will provide around $650 a month at age 65 in 2030. The other was about $30 per month (and was based on about 11 months of service in that classification).

Well, since the cash value of the smaller component is less than $5000, they are allowed to cash it out whether I want them to or not (they can't do that with the larger of my two pensions). The problem is, they prematurely cut the checks and withheld the required 20%, made it directly payable to me. They called to say they had already stopped payment on that check (total pre-tax a little under $2500) and will send a form asking me for my preference (in which I will roll it directly into my Schwab IRA).

But just the same, now I have to watch my tax forms and such this year to make sure they don't report a taxable pension distribution (subject to penalty) by mistake. Whee...
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Old 01-09-2015, 12:44 PM   #7
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if they do auto cashout under 5K (but over 1K) I'm pretty sure they have to let you roll it
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Old 01-09-2015, 12:46 PM   #8
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if they do auto cashout under 5K (but over 1K) I'm pretty sure they have to let you roll it
Correct, which is why they had to stop payment on all the checks they sent out, hit the reset button, and start over again.
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Old 01-09-2015, 05:09 PM   #9
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.............not sure about the second question, I would need to do about 5 minutes of research
Yup, that's how long it took me
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