Rolling over to a Roth IRA might entail a very high tax bill on the amount too. If you are talking about $250k worth of pension, your questions need to be different than $20k.
For example, if you have a $250k pension, it's likely better for you to make it a traditional IRA and then just incur the early withdrawal penalties than it is to convert the whole amount to Roth in one year.
Why is he rolling over a pension amount? Is he not vested? The company may want him to roll it, but that may not be best for him.
The pension plan administrators are also firm believers in the time value of money. Why did the CPA recommend taking the lump sum rollover? Did he calculate the cost of purchasing a deferred annuity and compare that to the lump sum? In your shoes, I would look at that calculation as part of my decision-making process.
Rolling a pension into a Roth IRA is the same as taking the money out. It's a taxable event. In most situations, the traditional IRA rollover is the better choice.
What I'm asking is, let's say my husband is 64 years old and we don't need the money that year, or my husband is 69 and only needs a few thousand dollars out of that account for a year, is that something that can be done...?We'll take the easiest one first: with some exceptions that most likely will not apply to you, the answer is "yes".
We won't be taking the immediate annuity amount as that would put us in a higher tax bracket, and we would basically receive 1/3 of the amount on a monthly basis due to taxes.Wow! A 67% tax rate? Are you sure?
And now, we have a few options. [1]Roll it over, [2]wait until his normal retirement date and take a monthly payment then, and [3]take an immediate annuity amount.
...
I'm assuming there is a calculator on the web that will give this info?
One way to evaluate "pension now" vs. "pension later" |
Compare pension payment promised at the later time to either |
- the "Interest generated by Future Value" (Future Value principal is not touched), or |
- the "Constant withdrawal of FV over time L" (principal goes to zero), or |
- "Trinity-style withdrawal of FV over time L" (annually inflated spending; principal -> zero) |
Lump sum now | PV | $400000 | |
Payment starting now | Pmt_now | 0 | $/payment |
Interest rate | i | 5.0% | /yr |
number of years | n | 5 | yr |
number of payments/year | freq | 1 | /yr |
When payments are made for each n | type | 0 | 0 = at end, 1 = at start |
Future Value | FV | $510513 | |
Interest generated by Future Value | FV(i,n,P) * i | 25526 | $/payment |
Longevity of future pension | L | 30 | yr |
Constant withdrawal of FV over time L | Pmt_future | 33210 | $/payment |
Spending growth rate (e.g., CPI) | g | 2.0% | /yr |
First year Trinity-style withdrawal | W(FV,L,i,g) | 25110 | $/yr |
2092 | $/mo |