OK, you MUST take the deferred comp. It will be considered ordinary income — on top of any other income you may have on your joint return. And you must pay taxes on it.
If you are still working, you can put it into an IRA. If its a traditional IRA, you can deduct that amount — $7,000 in 2020. (by the way, you have until the date of your tax return, April 15th, to make n iRAa contribution for 2019 if you want. But if you don’t have that much earned income (and deferred comp doesn’t count) then YOU can’t make an IRA contribution at all.
If your wife is still working and earning income, and qualifies based on her low income to open a traditional, deductible IRA — you could certainly give her the money to put into HER IRA. Maximum combined in either type is $7,000 –IF she is earning that much. Consult your tax advisor. .
Now, assuming you can’t put any of the money into a retirement account because you are not working and she has fully contributed to her own Roth IRA ($7,000 max), the big question is what should you do with the money. Here are a few suggestions — but NONE of them will avoid taxes.
1. Just put it into a bank CD. Rates are so low you won’t earn much, so you won’t pay much in taxes!
2. Pay down your mortgage.
3. Spend some on getting an updated estate plan.
4. Take a lump sum and deposit it into a “combo life/Long Term Care” policy. If you need custodial care in the future, your deposit will be leveraged to a much large pool of money to pay for care. If you don’t need the care, your heirs get a death benefit. (Read the new edition of my book, The Savage Truth on Money Link to it on Amazon is on my website home page — to learn in detail how this works and get the number for good advice on this purchase.) Surely you can spend $15 on my book!!
5. Take our wife on a nice vacation!
You just got a bonus. Since you’re only 69-1/2 now, you won’t have to take Required Minimum Withdrawals from your other retirement accounts until age 72. You deserve a vacation!