Additionally, if you can get past the hurdle of the ex wife you need to look at the lump sum payment, depending on its structure it can sometimes be better to take it out into a taxable account under the net unrealized appreciation rule- you need a lawyer and a planner if this is substantial.
This was my gut feeling, too. If I read the literature, they word it as if they've tried to structure all the options based on exactly the same base amount (the amount currently put away in the pension.) There is also some value to "the known." If this money is sitting in a Vanguard account I already own vs. sitting in "some randomly picked plan administrator's" account -- I have control and knowledge that it is unlikely to vaporize and disappear. I don't have any real mistrust for ex-employer or their minions... but stuff happens. You never know what they'll be like in another 15-20 years.
The ex-wife thing is a PITA... but it's probably a relatively simple/inexpensive question for a decent lawyer. I sort of hate that it is an issue, but I would rather payout some small fraction now than face some lawsuit (with possible punitive penalties for my negligence) later. And: as much as we're "not really friends" -- I think it's the right thing to do.
Yep, can't help you with the ex, but for the lump sum Vanguard taxable account may be better than IRA or Roth... depending on the structure.
Somehow I missed the taxable on your first reply (and I am glad you repeated it). My gut was also to take it into the Roth and pay whatever taxes that implied... but I can totally see how taking it fully taxed could be an advantage -- especially since I am probably 1-3 years from FIRE.
I seriously need to have a CPA (or some sort of financial guy) run some numbers. I'm normally totally DIY in this regard, but my time is very short here.
Yep, worth it. Point out this rule to them too and see if it applies. I just worked through it on a case for someone retiring early and it was surprisingly good for them. Here is an example I wrote up about how it works, I use 401K but it can apply to other profit sharing plans that offer lump sums. It is typically about own company stock to which it applies (not sure if that is your case or not?) but frequently when late issue lump sum payments are offered, as in your case it is related to this.
Here is a short post I wrote on it.
http://saverocity.com/finance/taking-early-401k-distribution-can-savvy-move-net-unrealized-appreciation-tax-rule/Going into ROTHS directly (and leveraging NUA rules) has been closed off now since 2009 the IRS found out about the loophole
http://www.irs.gov/pub/irs-drop/notice_2009-75.pdfIn essence the NUA rule allows you to pay income tax on the BASIS not the VALUE of the plan - which if it is an old one from back in the day that has appreciated over time might make a big impact to you. The difference between basis and present value will still be taxable, but you can pay it at Cap Gains rates rather than income rates.
Theory is that if you roll over you into a Trad IRA you will eventually be withdrawing at Income Tax levels, though if your FIRE plan is created with a low annual outflow it might be smarter to pay at Ordinary Tax rather than Cap Gains (Long Term) rates.
So, there are a few moving parts, but at least now you can bring it up with a finance guy to see if it might make sense - a lot of people aren't aware of this rule so it is good to know about in your planning process.
