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Lump sum investment and Tax strategy ?
Old 12-21-2016, 10:01 AM   #1
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Lump sum investment and Tax strategy ?

Will be receiving a lump sum pension (decision to not take the annuity: done) early next year. Once received, it will represent around 22% of our investable portfolio. ER'in4 4 Jan 2017. Plan to live off DW paycheck (more or less) until she retires in 3-4 years. Non lump sum portfolio is now invested primarily in 401Ks in Vanguard Mutuals (maybe 55% of portfolio), remainder scattered in some Roths, IRAs, brokerage accounts and cash-like.

Got the pension package/release in the mail yesterday and started reading. I guess I can roll the LS into existing IRA's and 401k(?). The firm managing my companies 401k (my wife works for them as well) will continue to manage it after I retire (pretty sure of that, will investigate).

Or I can take the LS in cash with a 20% Fed hit.

I'll stop there. Still reading, researching but thought I would post here for comments/thoughts. Taking the LS as cash doesn't seem like a good idea. I am about to take stock of all of my investment/holdings and start to "risk shed" a bit from a 60/40 closer to a 40/60, in advance of my DW retiring and the portfolio engine finally needing to be started up.

Thoughts, ideas?

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Old 12-21-2016, 01:32 PM   #2
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Originally Posted by doneat58 View Post
Or I can take the LS in cash with a 20% Fed hit.
Depends on a lot of things, but one key item is your future tax rate.

Roughly speaking, if you expect your tax rate be higher in the future when you need to access that money then take the lower tax hit now. Otherwise roll it into an IRA and let it grow.

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Old 12-21-2016, 03:37 PM   #3
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Based on what I read, we can all expect a lower tax rate in the future.
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Old 12-21-2016, 03:41 PM   #4
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Old 12-21-2016, 03:41 PM   #5
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Originally Posted by doneat58 View Post

Or I can take the LS in cash with a 20% Fed hit.

20% tax hit--or a 20% mandatory withholding, with tax hit to be determined by your marginal rate(s) after wife's earnings?
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Old 12-21-2016, 04:04 PM   #6
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Originally Posted by doneat58 View Post
....Or I can take the LS in cash with a 20% Fed hit.

Thoughts, ideas?
Just an educated guess here, but the 20% is what would be withheld.... what you end up paying would likely be much more than 20%... more likely 25%, 28% or 33% depending on your tax bracket based on your wife's earnings, other income, deductions and exemptions. Plus, if you live in a state with a state income tax there would be additional taxes as well.

Your best bet is it roll it into your IRA and then invest the rolled over funds consistent with your target asset allocation.

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