Question

Employer Terminated our pension

Forum|Forum|6 years ago
August 1, 2019
2 replies
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My former employer terminated our defined pension plan and offered a lump sum or annuity to us. I am choosing the lump sum and as I was researching TT for help to lower my taxes found this statement in the help area:

"Money from a deferred annuity contract purchased by your employer because the employer's retirement plan or retirement annuity plan terminated. The employer held the annuity contract until you stopped working there."

Can I apply this to my situation as the company held the pension funds and then subsequently terminated the plan?

I do plan to roll over a portion of the lump sum and recoup that tax portion of the 20% withholding.

D

dmertz

Employee

In what Help area did you find the statement that you quoted? I'm not sure it applies to your situation since it appears to refer to an annuity established upon plan termination while you were still employed there, which doesn't seem to be the case here.

The plan is required to allow you to do a direct rollover to an IRA (a distribution made payable to the IRA for your benefit, not paid directly to you) of a buyout of a qualified pension plan and avoid the mandatory tax withholding. Whatever portion is not rolled over is subject to ordinary income tax and, unless an exception applies, to a 10% early-distribution penalty. If you choose to have the distribution paid to you instead, mandatory 20% tax withholding applies and you would have to substitute other funds if you wanted to complete the indirect rollover of the entire distribution.

You can also do a direct rollover to a Roth IRA, avoiding mandatory tax withholding, but that would be taxable and you might need to make an estimated tax payment to avoid underpayment of taxes.

This IRS web page might be useful:

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-plan-terminations

A

Anonymous

go back to where you found that quote and read the answers.

if the distribution is rolled over into a qualified plan including a qualified retirement annuity it's not taxed immediately - only when distributions start. any amount not rolled over including any withholding is subject to regular income tax and if you are under 591/2 there's a 10% penalty. if the company is going to cash out the pension and not provide a means of directly rolling over the amount to another qualified plan (such as IRA) you have 60 days to put the money into the other plan. failure to do so results in the entire distribution being tax and if under 59 1/2 the 10% penalty applies to all. If you are going to put any money into the annuity, investigate it very carefully - fees, guarantee return, number of years payments guaranteed.