Not sure what to do with your large lump sum pension payment?

First, it’s good to be proactive and think about your options for moving a major sum of money like this. A little planning before you move the assets can save you a lot of pain later on. Too many people move the money first and ask questions after, which can cost quite a bit in taxes and lost gains. 

“I can’t tell you how often I’ve been asked for help after a consumer has made an incorrect rollover decision or an unadvisable Roth conversion incurring hefty tax liability. At that point, when they call me to ask for help it’s after the damage is done, and most times- there just isn’t much that can be done for them,” says Stacy J. Summerlin, President of Summerlin Benefits Consulting Inc. 

In the example above, if this $130,000 is an essential part of your retirement income plan and since its available to you as funds that have not yet been taxed, the first place to start would be to consider setting up and doing a direct rollover into an Individual Retirement Account (IRA).  

Your pension plan administrator should be able to send the money directly to a new financial institution with whom you have set up a Traditional IRA. This is done via a process called a Qualified Transfer- meaning funds move from one financial institution to another without the consumer receiving a direct distribution of funds. “With a qualified transfer of this nature,” said Stacy, “you won’t owe taxes on the rollover and it can continue to grow in a tax-deferred status for you until you start taking income distributions later.” Stacy went on to say, “if you also utilize a product like a lifetime income annuity within the Rollover IRA you can protect your lump sum savings so that it will grow safely from here on out and potentially will even improve your future income dollars down the road.” 

If by chance, you have already received your lump sum pension payout as a distribution (ex. the check was made out to you), then you still help yourself avoid taxation now by depositing it into a Traditional IRA within 60 days of the distribution. As such, you can still likely defer the tax but the timing can be tricky and if you miss your window, you’ll owe the IRS income tax on the full amount. On an amount like $130,000, those taxes can take away a huge chunk of your money.

Taxes are not the only thing to think about because frankly if you’re putting your lump sum pension rollover directly into an IRA and following the IRS guidelines when doing so, taxes becomes a moot point for now. The bigger questions consumers should ask themselves before taking a lump sum pension distribution of any kind are (1) how much of this money can I afford to lose in a volatile stock market, and (2) how do I intend to use these funds during retirement? That’s where the true strategizing begins.

When rolling over a lump sum pension there are safer and more simple strategies that can be used, instead of the risky investment funds often found in a rollover IRA. Being conservative with an asset like this can mean the difference between making your money last vs outliving your savings.

So what is the best vehicle for a lump sum rollover pension into an IRA? 

Well for some, using fixed income options like indexed annuities, multi-year guaranteed annuities, and lifetime income annuities is one solid way to go. All three of these vehicles will help you ensure you will not lose money during market declines and can prepare for you a valuable income stream to supplement your Social Security benefits. [Remember, if you are about to retire the longer you wait to take social security means you will increase the payout that you qualify for. You can claim Social Security as early as 62, but for many people, it might be advisable to try and wait until age 70 if you can hold out that long.] 

“Safe Money Strategies” are key to every savvy investor’s retirement plan. For today’s retiree it’s all about protecting your principal during market declines while offering a reasonable rate of return during market upswings. It can truly be that simple.  

At Summerlin Benefits Consulting Inc. we specialize in helping clients figure out if taking their pension as monthly income payments OR taking it as a lump sum pension rollover would be best for them.   We’ll work with you to develop the right strategy based on your unique needs. Our goal is to help our clients feel secure in their personal financial future. 

No matter how large or how small your retirement savings fund is, your money is important to you, and making it last the rest of your life is essential to your financial health. If you need help deciding how to do a pension rollover or with any other Safety-First oriented retirement strategy, contact Summerlin Benefits Consulting today!