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Defined Benefit Retirement Plan Termination & the distribution of assets
Posted on 7/27/14 at 10:17 am
Posted on 7/27/14 at 10:17 am
My employer is termimating a defined benefit retirement plan of which I am 100% vested. The Plan was frozen in 2005 and now they are terminating participation and will be distributing assets. I am 56 years old but will not be retiring until at least 60 probably 62. I also participate in a 401K plan through my employer.
My questions for the gurus on this board:
1. Should I move all the assets to my 401K Plan?
2. Can I choose to use a portion($20K) of the benefit payment for personal reasons, i.e. to pay off debt?
3. What are the potential tax implications?
4. Do you have a recommendation for a good financial advisor in BR? Can or should I use my bank for this? I bank with Regions.
Thanks in advance for any feedback!
My questions for the gurus on this board:
1. Should I move all the assets to my 401K Plan?
2. Can I choose to use a portion($20K) of the benefit payment for personal reasons, i.e. to pay off debt?
3. What are the potential tax implications?
4. Do you have a recommendation for a good financial advisor in BR? Can or should I use my bank for this? I bank with Regions.
Thanks in advance for any feedback!
2
Posted on 7/27/14 at 2:08 pm to LSUBCILUVTHEM
1. I would personally move it into an IRA, if you contact Vanguard they should be able to open the account and walk you through the rollover process.
2 & 3. If you roll out a portion of it for debt you will pay ordinary income tax on the amount you roll out plus a 10% penalty on the sum. If you need $20k for debt pay off you would need to pull $28k out (assuming a 25% tax rate) and give $8k to Uncle Sam. If you wait until 59.5 you will not be hit with the additional 10% penalty.
4. I can't make a recommendation on a specific advisor. I would however stay away from your bank. They could be great, but my experience is that bank advisors typically are more salesmen than advisors. Just my $.02.
2 & 3. If you roll out a portion of it for debt you will pay ordinary income tax on the amount you roll out plus a 10% penalty on the sum. If you need $20k for debt pay off you would need to pull $28k out (assuming a 25% tax rate) and give $8k to Uncle Sam. If you wait until 59.5 you will not be hit with the additional 10% penalty.
4. I can't make a recommendation on a specific advisor. I would however stay away from your bank. They could be great, but my experience is that bank advisors typically are more salesmen than advisors. Just my $.02.
Posted on 7/27/14 at 4:16 pm to LSUBCILUVTHEM
1. It's your decision to move the assets to either your 401k plan (less options, less expensive), or an IRA with whoever you choose (more options, more expensive.
2. You can choose to use the $20k for personal use, however just as others have mentioned since you are under 59.5 the 20k will be counted as an income distribution plus 10% penalty. It could potentially throw you in a new tax bracket. (consult your tax professional before choosing if you decide to do this)
3. If you move it to a 401k or IRA its a tax free roll over, your only deferring the taxes till you eventually are forced to make your RMD withdrawals at 70.5 at the latest. If you tax any distribution out of a qualified plan before 59.5 then see (2).
4. Do you own research, ask friends/family. If you truly feel like you can handle your own life savings and your future retirement, then go with vanguard. If you have the slightest doubt in what your doing, then consult a professional.
2. You can choose to use the $20k for personal use, however just as others have mentioned since you are under 59.5 the 20k will be counted as an income distribution plus 10% penalty. It could potentially throw you in a new tax bracket. (consult your tax professional before choosing if you decide to do this)
3. If you move it to a 401k or IRA its a tax free roll over, your only deferring the taxes till you eventually are forced to make your RMD withdrawals at 70.5 at the latest. If you tax any distribution out of a qualified plan before 59.5 then see (2).
4. Do you own research, ask friends/family. If you truly feel like you can handle your own life savings and your future retirement, then go with vanguard. If you have the slightest doubt in what your doing, then consult a professional.
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