Should I take a lump sum pension or roll it over?

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Craig Smalley, Tax Professional

@cwseapa • 05/22/15 This answer was first published on 05/22/15. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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A lump sum payout would be subject to income tax at whatever rate your income tax bracket falls. Rolling it over, would be tax-free. That is what the difference is.
Craig W. Smalley, E.A. - Admitted To Practice Before The Internal Revenue Service

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Larry McClanahan, Financial Advisor

@LarryMcClanahan • 05/22/15 This answer was first published on 05/22/15. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

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If you roll your pension benefit directly to an IRA, you won't be immediately taxed plus it has the potential to continue growing sheltered from tax until you draw it out. If you have the lump sum paid to you personally, the entire amount will be taxable plus a federal 10% penalty tax if you're under age 59.5.
If this is an actual defined benefit pension, it may be in your best interests to leave it with the company and collect it in the future when you retire. Be sure it's not a "low-ball" lump sum offer to take (or roll) it now instead of collecting a more valuable future payout from the company's plan. If you're unclear how to make that assessment, consult a qualified financial planner to help you.
Hope that helps. All the best in your decision!
Larry

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