Posted byMessage
Gaston
LSU Fan
Dirty Coast
Member since Aug 2008
19133 posts

Lump Sum Distribution of my Pension Benefit


I worked for a company for 6 years, quit 5 years ago. I get this letter stating I can take all of my benefits now for some reason. I don't question that, I question what they say I will be paid if I don't do anything. They estimate my monthly payment in 2039 to be $324/mo. They would really pay me 325/mo when I hit retirement age just for working 6 years at their company? Hard to believe.

Lump sum is $8700, which I'm sure would be taxed to the hilt.

How do companies make it with all of this burden? They must have a ton of people who worked there 6 years. I can't imagine what it would have been after 30 years of service.

ETA: Oh, and advice?



This post was edited on 11/15 at 6:19 pm



Back to top
Share:
LSURussian
LSU Fan
Baton Rouge
Member since Feb 2005
76189 posts

re: Lump Sum Distribution of my Pension Benefit


You can roll the lump sum distribution into a rollover IR a and defer taxes until you withdraw the funds when you retire.

Using a 6% rate of return compounded quarterly, your lump sum would approximately double twice, plus a bit more, before 2039.






Back to top
oldschoolgreats
LSU Fan
Member since Nov 2012
1201 posts

re: Lump Sum Distribution of my Pension Benefit


using the rule of 72 it would double in 12 years and then double again before 2039.





Back to top
Gaston
LSU Fan
Dirty Coast
Member since Aug 2008
19133 posts

re: Lump Sum Distribution of my Pension Benefit


Thank you. I'll take your advice





Back to top
RedsPredsTitansVols
Member since Jul 2012
13 posts

re: Lump Sum Distribution of my Pension Benefit


If you choose to take the lump sum, you'll be taxed 20%, which should be taken off the top. If you are under 59 1/2, which i'm assuming you are, you'll be taxed another 10% that I believe you'll pay when you file your taxes. You should have been given some information that would explain what percentage they'll be withholding.

Companies can afford to offer these benefits mainly due to the amount of tax savings that they receive. I work in the Pension field and a large percentage of pension plans pay for 100% of the non-owner benefits in the tax savings alone. They end up being just a way for the owner to shelter money for themself.






Back to top
BARNEYSTINSON
LSU Fan
Member since Oct 2011
190 posts

re: Lump Sum Distribution of my Pension Benefit


He will only be taxed if he takes the distribution rather than rolling over.





Back to top
RedsPredsTitansVols
Member since Jul 2012
13 posts

re: Lump Sum Distribution of my Pension Benefit


quote:

He will only be taxed if he takes the distribution rather than rolling over.


Correct. I meant if he takes the lump sum now instead of rolling it over.






Back to top
Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
14387 posts

re: Lump Sum Distribution of my Pension Benefit


If I had to guess I'd say that the account is your vested interest in the company's profit sharing plan from your tenure with the company. They are trying to ease their administrative burden and induce you to withdraw from their plan. You do not have to as evidenced by the estimated $324/mo. payments beginning in 2039.

If you do elect to withdraw from the plan you can take the money now and pay income tax on the distribution plus an additional 10% as a penalty for early distriubtion. Or you can roll the account balance over into an IRA and defer the tax until you withdraw the money at some future date.






Back to top
jeffsdad
Member since Mar 2007
3391 posts

re: Lump Sum Distribution of my Pension Benefit


Obviously, you dont want to take the lump sum. Keep that sucker in a retirement acct and you already got a head start (on retirement). I made that exact mistake (taking a lump sum) many years ago and even though I will be fine at retirement, that would have made it a lot better than fine.





Back to top
Newbomb Turk
Navy Fan
perfectanschlagen
Member since May 2008
9961 posts

re: Lump Sum Distribution of my Pension Benefit


quote:

If you choose to take the lump sum, you'll be taxed 20%, which should be taken off the top. If you are under 59 1/2, which i'm assuming you are, you'll be taxed another 10% that I believe you'll pay when you file your taxes. You should have been given some information that would explain what percentage they'll be withholding.


He's not going to be "taxed" at 20% -- he'll be taxed at his marginal rate if he takes it out and doesn't roll it over.

The 20% figure is what they'll withhold.



This post was edited on 11/16 at 6:41 am


Back to top



Back to top