Ask Terry Questions Pension to Roth

Pension to Roth

By Terry Savage on September 21, 2019 | Financial Planning / Retirement

Hi Terry
I am a single 55 year old with a pension from a previous employer currently at under $10k. I would like to withdraw and deposit it into my current Roth account I have with my current employer.
Is this a good idea and if so what is the best method to move it for the least tax impact? I also have a 401k account with my current employer but thinking the Roth is the best way?


Terry Says

Whoa!  What are the rules of your previous employer’s pension?  Are you allowed to “roll it over” to an IRA?  If not , are you fully vested, meaning you can withdraw it?  If you do withdraw you’ll be subject to ordinary income taxes at your marginalrate. If you leave it where it is, will it continue to grow?  Those are key considerations.

If it can be rolled, it should be done directly to an IRA rollover account at Fidelity or Vanguard. They’ll handle the details. That will keep the money growing tax-deferred.

If it must be withdrawn, be sure to ask for tax withholding. Then you can do what you want with the remainder. If you have other earned income you can make a contribution to a Roth IRA using this money.  But make sure your employer will accept outside contributions to its Roth 401k. If not open a separate Roth but make sure you stay within the max annual contribution limits.

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