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Old 12-27-2016, 06:29 PM
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'Early retired'

Information no longer needed but couldn't find a way to delete thread. Thanks!

Last edited by Magnetwife : 02-16-2017 at 09:11 AM.

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Old 12-28-2016, 05:08 PM
Join Date: Oct 2010
Posts: 5,254
'Early retired'
I recently left my job of 25 years due to some ugly circumstances taking place there. I had a pension and a 401k. I'm rolling the 401k over either into an IRA or a new employers plan but the pension I elected to have as a lump sum. They assured me it wouldn't arrive until beginning of next year but as luck would have it, it arrived sooner. They took out 20% for taxes - however I'm not retirement age yet. Will this lump sum count as income for 2016 and kill me with being in a higher tax bracket come April? =======>Correct; The 20% withheld from your lump sum retirement distribution is a federal income tax prepayment similar to the federal income taxes withheld from your pay check. It is held by the federal government as a credit toward you r tax liability for the year in which your payout was made. You can use that tax prepayment to reduce your tax liability when you file your tax return the following year, usually by April 15th. Or, if you over paid your federal taxes you will be entitled to a refund of the excess taxes withheld. In general as you said, employers of most pension plans are required to withhold a mandatory 20% of your lump sum retirement distribution when you leave their company. However, you can avoid this tax hit if you make a direct rollover of those funds to an IRA rollover account or another similar qualified plan of 401K or etc. Failure to rollover the entire amount of your lump sum distribution may result in your paying unnecessary taxes on all or a portion of your retirement payout. For any portion of your lump sum retirement distribution that is not rolled over within 60 days of receiving your retirement check, you can expect to pay taxes at your tax bracket rate. In genral, if you are under age 59 1/2 at the time you receive your retirement distribution, you will be hit with an additional tax penalty equal to 10% of any amount not rolled over within the required 60 day period. For someone truly concerned about reducing their tax bite and putting their pension funds to work prudently, a botched rollover can be costlyIf you are at least 55 years old when you leave your job, you will not have to pay an early distribution tax on any distribution you receive from your former employer's retirement plan.
This exception applies only to distributions you receive after you have separated from service, or terminated your employment with the company that sponsors the plan. You don't have to retire permanentlyAfter age 59 1/2, the early distribution tax does not apply to any retirement plan distribution.

Should I have them void it and disburse next month?=========>I guess you need to contact the plan administrator for sure

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