Pension Lump Sum Roth IRA

[tomz]

A few years ago, Megacorp ended our defined benefit pension plan and switched everyone over to a 401K plan. However, if you were vested in the plan, they calculated what your balance would have been at the time the plan ended. In short, I have around $30K waiting for me.
I am pulling the plug at the end of the year. At that time, I can choose to take a lump sum or there are a variety of payout options. My question is this: can I take the lump sum, pay the taxes, and put the entire amount into a Roth IRA or am I subject to the Roth limits? I know I can roll over the entire amount into my regular IRA and defer the tax. I've looked at the FAQs and did some searches but couldn't find an answer. Thanks in advance.

 

[youbet]

My question is this: can I take the lump sum, pay the taxes, and put the entire amount into a Roth IRA or am I subject to the Roth limits? .

I believe you would roll your pension lump sum into a rollover IRA and then convert that to a Roth IRA, paying ordinary income taxes on the amount you roll over.

 

[tomz]

Thanks for the reply. I did some digging on this and found that starting in 2008, you will be able to do direct rollovers from a 401k to a Roth IRA without having to go through the extra paperwork of first putting the funds into a regular IRA.

 

[youbet]

Thanks for the reply. I did some digging on this and found that starting in 2008, you will be able to do direct rollovers from a 401k to a Roth IRA without having to go through the extra paperwork of first putting the funds into a regular IRA.

That sounds like a change for the better! Gets you to the same place, but without the intermediate step.

While you were looking, did you notice if you still have to meet the income requirement for that type of direct transfer?

 

[tomz]

While you were looking, did you notice if you still have to meet the income requirement for that type of direct transfer?

Yes. You still have to meet the income requirement.