By Terry Savage on January 24, 2024 | Financial Planning / Retirement

Hello, I am about to retire in April from the fire department in Indiana. We have a pension program called “the drop “ which you can get into for a year up to 3 years. At the end of that time period the state gives you a lump sum and you still get pension payments. My question is with that lump sum, do I take it all at once( taxed heavily)or have it spread out in 3 years increments( taxed not as much ) or have it put into a 401 k that I currently have or maybe a Roth IRA ? Sorry for being to long. Thank you !

Terry Says

Whew, I’m not familiar with that program, so I’m afraid to opine. A lot goes into that decision. Part of it is what tax bracket it might move you into — thus affecting your Medicare Part B and D premiums. So that will depend on your other retirement income.

And, are you sure there is an option to roll it into an IRA rollover account? (You likely can’t roll it into a 40l(k) that you might have with another employer.) If that IRA rollver an option, you can keep the money growing tax-deferred, which seems to make the most sense.

I would ask if there are any Certified Financial Planners in your area who regularly deal with this decision. You can ask previously retired firefighters, or your HR department. And if not, go to and see if you can get matched with a fiduciary, fee only planner in your area.

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