What To Do With Lump Sum Pension Payout
What To Do With Lump Sum Pension Payout
I’m about to get $130,000 from a lump-sum pension payout, but I don’t know what to do with it
By Beth PinskerFollow
A reader wants to know the best way to invest a lump sum of money to have it last through retirement
Got a question about the mechanics of investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money?
Dear Fix My Portfolio, I am about to receive a lump-sum payout from a pension plan I was in. It’s around $130,000. Need some advice on the best way to invest this money. I am turning 60 in April and don’t have a 401(k) or IRA plan. Stephen in Connecticut
Dear Stephen,
It’s great that you’re asking what to do about moving around a major sum of money before it actually happens. So many people move the money first and ask questions later, which can cost you quite a bit in taxes and lost gain.
“I cannot tell you how many calls and inquiries I have received after an investor has made an incorrect rollover decision or unadvisable Roth conversion decisions, incurred huge tax liabilities, or caused their Medicare premiums to be double what they might otherwise be, and then called me to ask for help after the damage was done,” says Eric Amzalag, a financial planner and owner of Peak Financial Planning in Woodland Hills, Calif.
If $130,000 is going to be the majority of your nest egg for retirement, then you most likely want to do a direct rollover to an IRA account and never touch the money yourself. Your pension plan should be able to send the money directly to wherever you set up an account — most major financial institutions should have an option for you to open a rollover IRA account — and then you won’t owe tax until you take out distributions.
If the money comes to you in the form of a check and then you deposit it into an IRA account within 60 days of the distribution, you can 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.
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