This isn't a big enough question to post in the Case Studies subforum, so I thought I'd put it here. I had 6 years of service with Megacorp, and left 11 years ago. I'm vested a bit into their pension, and they are offering early dispursement: a small annuity now, a larger annuity way later, or a lump sum paid a few months from now. I'm currently 41, MFJ, in the 22% bracket, and conservatively plan to retire in 10 years (and hopefully well before then!). We're about halfway to "the number," with about 15% of our investments in "accessible" locations like Roth contributions and taxable brokerage accounts. I fully anticipate that we will be in the 12% tax bracket in retirement.
I plan to take the lump sum, but the question is where to put it.
Option 1: Roll it into an IRA. Advantages: Avoid taxes while I'm in a high tax bracket. Disadvantage: funds will be less accessible for a long time, and I really would like to boost our accessible assets in preparation for a Roth Pipeline.
Option 2: Roll it into a Roth IRA. Advantages: Can be withdrawn after 5 years, tax-free growth. Disadvantage: have to pay taxes now at 22%, although I think we'll still be able to contribute to our Roth IRAs
Option 3: Take it as income for taxable investments. Advantages: maximum flexibility, both in terms of investment options and withdrawal options. Disadvantage: pay taxes now at 22%
I have to make the decision fairly soon, and I'm *really* torn. I really like minimizing taxes, but I also really like the idea of plowing a whole bunch of money into my Roth IRA (since my current employer's plan doesn't allow a mega backdoor Roth), but I also have some off-the-market investment opportunities coming up, and even if I decide to stick to index funds, it would be huge for helping us get those first five years' expenses saved up.
Are there some aspects of this that I haven't yet considered? Which would you suggest?