I am 58 years old recently retired from employment and requested my retirement pension in a lump sum totaling $450,000. I haven’t pulled the funds yet and trying to decide if I should rollover the funds to an Roth IRA or Traditional IRA? I would like to know what you think the best options are to rollover my pension? I am currently employed again for another company earning $100,000 a year. The company I work for does have a 401K without any company match and also offers a pension where I will be fully vested in 5 years. I just need to make a wise decision on the pension ($450K) rollover. To give you a full picture, I am married and my husband currently receives a yearly $85,000 retirement annuity. Total yearly household income $185,000. I would appreciate your expertise on the Roth IRA, Traditional IRA or any other tax shielded options. Thank You!
Terry Says: OK, well, presuming it is not too late, your first question should be: “Is a lump sum of $450,000 a reasonable substitute for a lifetime of pension benefits?” To find that answer go to www.ImmediateAnnuities.com. Insert that lump sum into the calculator, along with your age, and state of residence. With a click it will tell you “how much” you could receive a month for the rest of your life based on that deposit. You’ll get illustrations from various insurance companies. Compare that monthly or annual amount with what you would have received for your pension each month. Sometimes it is better to take the monthly check — unless you feel you have a health condition that would impact your ability to live to your actuarially projected age.
Now, I’m assuming that your company does allow and will handle a lump sum rollover directly to an IRA. That’s how it must be done to avoid taxes. After that, you can “convert” your IRA to a Roth IRA — but only by paying all the taxes due — now, and with money from outside your retirement plan! I’m quite sure you do not want to do that! It’s nice to have a tax-free Roth IRA working for you, because all subsequent gains will come out free of taxes, and you will not be required to take withdrawals from a Roth. But it’s tough to pay the taxes now with non-IRA money!
There may be some other circumstances that apply in your case, however, and I don’t have all the details. I suggest you find a Certified Financial Planner in your area — by going to www.CFPBoard.org or www.NAPFA.org (the latter being the organization of fee-only planners). These decisions should be made in the context of an overall financial plan that also includes your estate plan.