Ask Terry Questions Lump sum pension distribution

Lump sum pension distribution

By Terry Savage on March 11, 2023 | Financial Planning / Retirement

Hi Terry- I recently left a firm where I had a small pension cash balance amount ($25k). I would like to take the lump sum as a cash distribution and not a rollover, as I have significant other retirement savings. I will be 55 this year. I read on the IRS website that at my age I will not be subject to the penalty tax if I take a cash distribution. Is this correct? Will it just be taxed as ordinary income?
Thank you very much.

Terry Says

That’s probably a mistake — even if you already have retirement savings. You’re losing all future growth in this account! But I assume you have some current use for the money.
Unless the current retirement account is a SEP or SEP-IRA, you won’t be charged a penalty for early withdrawal if you leave the company. But you will find that amount added to your ordinary income, and it might move you into a higher bracket.

For details, read THIS from the IRS>



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