Pension Fund Termination
My company is terminating our pension plan and provides us three options. Lump sum, transfer to annuities and begin pension payments or wait to take your pension benefit at a later date.
Stats: Current employee, married, age 62, not expected to retire until at least 5 years in a 24% tax bracket. Current pension around $70K. Have an existing HELOC current balance $46K, 9%, 240 months maturity date of 6/9/2036 and around $20K in home improvements.
My assumption is not to take the lump amount, pension payments or roll over to a Roth IRA because I would be paying taxes at a higher rate then I would when I retire. So best to roll over to the company Smart Saver 401k unless it makes sense to take the lump sum to pay off the HELOC loan. If I take the lump sum to pay off the HELOC loan then I would be subjected to ordinary taxes but I believe I would not have to pay the 10% penalty because I am over the age of 59 ½.
I would like to get your thoughts as to whether it would be best to roll over to the Smart Saver 401k or pay off the HELOC loan.
Terry Says
That depends on how disciplined you are. I can’t believe you’re paying 9% on a home equity loan. I rarely advise taking a pension early and paying taxes. But in this case, I think I’d advise you to take enough to pay off your debt and pay the taxes. Then plan to work a lot longer to save more money for your eventual retirement.
And you need some budget counseling. Contact the National Foundation for Credit Counseling at 800-388-2227 to get some personalized help.
