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Cash balance plan
Old 06-26-2004, 06:48 PM   #1
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Cash balance plan

Hope you folks can assist me.

I am 55 and will be retiring early from my company. My retirement plan is a cash balance plan of approximately $50,000. I will need this to live on. The choices they gave me are to annuitize or take it as a lump sum.

I don't want to annuitize through the company since I feel I could do a better job and would rather have control of the money. Since I am 55 and will be breaking service I believe there would not be the 10% penalty.

If I take it as a lump sum, where would I put it so I do not incurr penalties? Should I roll it over into an IRA and do a 72(t)? Key thing is I will need this to live on and want to avoid penalties. Which way do I go?


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Re: Cash balance plan
Old 06-26-2004, 07:14 PM   #2
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Re: Cash balance plan

More info needed. Is this in a 401K? If so, you should roll it to an IRA and do a 72T to avoid penalties. More important, what does it cost you to support your lifestyle? Can you downsize any? Do you own your home outright or have any other assets? If you took the annuity option, how much would you get each month and how short would you be from being able to break even each month? 50k isn't alot -- but maybe that's just my take
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Re: Cash balance plan
Old 06-27-2004, 03:06 AM   #3
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Re: Cash balance plan

The cash balance plan was converted a few years ago by my company from a defined benefit plan. The latest projection shows I would get about $288.00 a month and I feel I could do better on my own.

This is in addition to my 401k plan which I plan to tap also when I retire. My home is paid up so I am mortgage free. I am also a widower. I want to keep control over the cash balance plan at this time and dont really want to do a 72(t).

Thanks again
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https://www.immediateannuitiesRe: Cash balance plan
Old 06-27-2004, 04:38 AM   #4
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https://www.immediateannuitiesRe: Cash balance plan

I believe that you can access your 401K plan without penalty provided you are atleast 55 yr old when you leave. *As far as pension plan goes, I believe you can not touch it until 59.5 without penalty, unless 1) you take annunity from your company, 2) roll over to IRA and then annuitze the IRA funds from an alternate insurance company, or 3) 72T. *I am no expert on this, so better to check with a professional. Also, you can check to see if other companies payouts would be greater than your companies annuity.

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Re: Cash balance plan
Old 06-27-2004, 04:54 AM   #5
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Re: Cash balance plan

My father in law had the same deal, He was a little older with more cash in the plan, so we advised him to take the cash. In a nutshell here are the considerations as I see them. You may make the decision based on this and similar input.

The company wants to offer you 288 per month. That would be 14 years until you deplete the funds (no interest). If you think you will live well over 69 it may be a good deal at such low interest rates. Because the money is for life I assume. If you can think you can do better by investing it yourself or with a self directed immediate annuity, you may be better transferring it to one. Check what an immediate annuity will pay per month at current rates if you give them $50k. There are many options here but if you are a member of the AAA they have a good plan with lower than regular commercial expenses. Remember expenses can be high on annuities.

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Re: Cash balance plan
Old 06-27-2004, 03:13 PM   #6
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Re: Cash balance plan

If you retire after age 55, you can take the 401k money as you see fit, without penalty.
If you roll it over into an IRA, you cannot take it until age 59.5, unless you do a 72t.
I just retired 2 months ago, age 57.5, and will not do a roll-over until age 59.5, because I don't want to do a 72t. Too many limitations/requirments with a 72t.
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Re: Cash balance plan
Old 06-28-2004, 03:30 AM   #7
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Re: Cash balance plan

Ray is right about doing a 72t dustribution, which I fully
expected to need. Nearing 59 and a half, I asked my broker about what I could do vis-s-vis taking IRA
distributions if I waited (setting the draw, changing
it, starting the draw, stopping for a bit , etc). His answer,
was that I could do about whatever I wanted up until I was 70 and a half.

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Re: Cash balance plan
Old 06-28-2004, 07:08 AM   #8
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Re: Cash balance plan

I'll echo the 401(k) advice on age 55 while adding that the trustee companies sometimes deemphasize the option that you can manage your own money because they want to sell you an annuity.

As far as your pension plan, I am confused. I thought cash balance and defined benefit pension plans were mutually exclusive. I haven't thought about my DB plan much, bust as far as I know my only option is an annuity payout. Now that I think about it I'm curious to see if there are other options. I'm sure there are rules governing pension plans, but I don't know where to look.

You got me thinking, and I poked around the IRS site but haven't found anything definitively helpful yet. However "cash balance" is defined in a survey as a type of defined benefit plan, so I guess I was wrong about them being mutually exclusive.

Anyway, the first information source I suppose would be your benefits department, then maybe an accountant. If they treat it like pretax retirement savings maybe you can roll it into your 401(k)?
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Re: Cash balance plan
Old 06-29-2004, 03:29 PM   #9
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Re: Cash balance plan

Thanks!!! Looks like I am leaning towards the IRA rollover. My benefits department is useless they orginally gave me incorrect info.

Gonna stick with the experts here
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