|
Pension buyout, IRA, Annuity, < age 59.5
01-08-2015, 09:08 AM
|
#1
|
Dryer sheet aficionado
Join Date: Feb 2013
Posts: 40
|
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.
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
01-08-2015, 09:50 AM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2007
Posts: 14,328
|
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
|
|
|
01-08-2015, 05:35 PM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
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.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
01-09-2015, 11:33 AM
|
#4
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
Quote:
Originally Posted by DUFUS
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
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
01-09-2015, 11:38 AM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
Quote:
Originally Posted by nun
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
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
01-09-2015, 11:40 AM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
|
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...
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
|
|
|
01-09-2015, 11:44 AM
|
#7
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
if they do auto cashout under 5K (but over 1K) I'm pretty sure they have to let you roll it
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
01-09-2015, 11:46 AM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
|
Quote:
Originally Posted by Big_Hitter
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.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
|
|
|
01-09-2015, 04:09 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2007
Posts: 14,328
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|