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Pension Buyout - How to manage?

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10-13-2023 , 05:11 PM

kevstreet

Pooh-Bah

Join Date: Dec 2004 Posts: 4,617

I was offered a buyout of a small pension ($81,791) I have with a previous employer.

I did some research and it appears the best move for me is to take it and roll it over to an IRA?

I’m 55 years old, so I’m old unfortunately, but I’ll still be working for at least 10 more years.

I’m assuming a traditional IRA? Is there a particular investment company I should go with (Charles Schwab, Fidelity, etc.)?

One last thing, I have an annoying credit card balance of $2,000 that I would like to clear. Advisable to take out enough to pay that off and roll over the rest?

Thanks in advance of any help you can advise.

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10-13-2023 , 11:10 PM

Montrealcorp

Carpal \'Tunnel

Join Date: May 2007 Posts: 13,319

Well thinking about u paying I suppose 20-25% of Interest on your credit card ?
That is a big leak .
Not many investment u can make that would beat a 25% yield to close out the leak that probably would last couple of quarters if not years at that rate of interest .
And that is just to break even ?!?

Pay those cards as fast as u can .

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10-13-2023 , 11:28 PM

kevstreet

Pooh-Bah

Join Date: Dec 2004 Posts: 4,617

Quote:

Originally Posted by Montrealcorp

Thank you.

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10-14-2023 , 12:01 AM

kevstreet

Pooh-Bah

Join Date: Dec 2004 Posts: 4,617

I really appreciate the response.

You’re absolutely right, the APR is 25%.

Do you have any advice on an investment company for an IRA or are they pretty much all the same?

Thanks again.

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10-14-2023 , 01:35 AM

Montrealcorp

Carpal \'Tunnel

Join Date: May 2007 Posts: 13,319

I let others respond to that question .

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10-14-2023 , 10:00 AM

Didace

Carpal \'Tunnel

Join Date: Nov 2009 Posts: 19,863

I'm not sure about pensions specifically, but there are usually tax penalties for early withdrawal of retirement accounts. You will lose more in penalties than you'll save in interest by paying off the credit card.

But, just pay it off. Suck it up for a few months on other things.

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10-14-2023 , 04:16 PM

smartDFS

old hand

Join Date: Feb 2015 Posts: 1,696

Quote:

Originally Posted by kevstreet

I did some research and it appears the best move for me is to take it and roll it over to an IRA?

Just curious whether you researched what your specific pension would provide, or if this was more an internet search of "should I accept a pension buyout and rollover to IRA?"

My skepticism (not based on experience with pension buyouts specifically, but more financial industry in general) is around 1) whether they are lowballing you with a buyout offer versus the actual present value of your pension 2) whether internet advice is motivated by selling you affiliate links to rollover IRA companies, while having nothing to gain from you rejecting the buyout offer.

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10-14-2023 , 06:14 PM

Montrealcorp

Carpal \'Tunnel

Join Date: May 2007 Posts: 13,319

Fwiw when a company is asking if u wish to do so , I doubt much penalties would be present .
On the contrary ?

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10-14-2023 , 09:34 PM

kevstreet

Pooh-Bah

Join Date: Dec 2004 Posts: 4,617

Quote:

Originally Posted by smartDFS

I actually consulted my accountant as well. She advised rolling it into an IRA. After a few text chats with her I felt bad asking additional questions for free: should I pay off my credit card, what institution should I go with, etc.

The option letter was very comprehensive. I also called the support line to ask if, besides tax penalties, there was any other penalties for raking it now and rolling it over and they said no.

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10-14-2023 , 10:40 PM

#10

smartDFS

old hand

Join Date: Feb 2015 Posts: 1,696

Quote:

Originally Posted by kevstreet

Nice. Best of luck! Don't think you can go wrong with any of the major IRA providers. Schwab and Vanguard have good low-cost ETF options.

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10-14-2023 , 11:05 PM

#11

kevstreet

Pooh-Bah

Join Date: Dec 2004 Posts: 4,617

Quote:

Originally Posted by smartDFS

Nice. Best of luck! Don't think you can go wrong with any of the major IRA providers. Schwab and Vanguard have good low-cost ETF options.

Thank you, kindly.

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10-15-2023 , 12:07 AM

#12

BrianTheMick2

Long way to go and a short time to get there.

Join Date: May 2012 Posts: 19,410

Quote:

Originally Posted by Montrealcorp

Fwiw when a company is asking if u wish to do so , I doubt much penalties would be present .
On the contrary ?

All assuming USA:

The penalties would be tax penalties. Pension payouts are taxable at the federal (and often state and local levels, ymmv) and there is an additional tax penalty if you don't meet certain criteria (basically, being old).

You can typically avoid the taxes and penalty taxes by rolling it over into an IRA.

The company isn't charging the penalty.

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10-18-2023 , 12:44 PM

#13

Blackmon81

centurion

Join Date: Jun 2012 Posts: 110

Since you are under the age of 59.5 you would owe a 10% penalty on any funds that are not rolled over into an IRA. Additionally, you would owe federal tax and state tax (if you have state income tax) on the amount distributed.

If you roll the entire amount correctly into a traditional ira then you will have no tax implications.

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