Pension to IRA rollover

#1

Hey everyone,

I’m 35 years old and interested in re-organizing my retirement accounts from a previous employer. I have a rollover IRA worth ~$64K and a pension worth ~$28K. I’m also currently enrolled in a pension plan with my current employer. My questions are two-fold:

  1. Does it make more sense to take my pension early as a lump sum and roll that over into my IRA? (This way I can invest and grow it better than it would in my pension plan account).
  2. Does it make sense to convert my IRA to a ROTH IRA, or would the taxes be too high at this point and it’s better to leave it traditional long term?

Any help or advice would be appreciated!

Thank you!
Jason

#2

I’m gonna give a little disclaimer here lol. The following is just my opinion, and I’m not a tax expert or you financial fiduciary. You are making your own decisions. :slight_smile:

  1. I’m assuming your ex-employer allow a lump sum option for your pension. Does your ex-employer have a time limit on when you are allowed to take the lump sum - within a year after termination or any time after termination? A few things to consider:
  • Normally, the normal retirement age in a Pension plan is age 65. If you cash out or commence your pension before 65, your benefit is actuarially reduced to match your young age.
  • Usually, if interest rates go down (your age kept constant), your present value (Pension lump sum) go up. You need to understand what actuarial basis (interest, mortality)the Pension plan uses to determine your Pension lump sum. If PPA basis, then interests environment is low right now that could be to your advantage.
  • Find out what monthly benefit you are entitled to in the pension if you wait until your normal retirement age. See if that’s an attractive number for you. If you plan on living a healthy and long life, the guaranteed fixed monthly annuity may be appealing.
  • If you think you can do better investing that $28k lump sum and generate better monthly income in your retirement than the monthly payment that the pension plan can provide, then rollover may be better.
  1. Do you expect to be in a higher tax rate now compare to when you want to withdraw the money? If you think your tax bracket is lower now, converting to Roth may be better. If you think your tax bracket will is lower at a later time when you want to withdraw, then don’t convert.