Treasury or annuity for retirement monies not needed?

[Pablo]

Gents,

Thanks for all the input.

What I can't figure out is why would Fidelty offer the below options to my wife, but never provide the lump sum payout amount?
1. Individual annuity
2. Beneficiary annuity
3. Fidelity IRA or 401K

Fidelity told my Wife if she takes #3, Fidelity will withhold 20 percent for taxes. We don't plan to use these funds for at least ten years/ 2033.

Leaning strongly towards #3, but of course need the lump sum amount, and if there is a method to avoid the 20 percent withhold.

Ask them why they won't tell you the amount.

Your wife has no statements?

Was the money originally pre-tax dollars?

IF so, Tell them (don't ASK) to roll it to an IRA

But now I'm thinking it was not a savings thing, rather just a "regular" pension. I bet the lump sum is not large. Maybe just be happy with the $1200/month. I had the same dealio from a buyout earlier on, near the same amount. The payout was not large, but you guys WILL like the $1200/month. That's like AM dining out all week.

 

[GON]

Ask them why they won't tell you the amount.

Your wife has no statements?

Was the money originally pre-tax dollars?

IF so, Tell them (don't ASK) to roll it to an IRA

But now I'm thinking it was not a savings thing, rather just a "regular" pension. I bet the lump sum is not large. Maybe just be happy with the $1200/month. I had the same dealio from a buyout earlier on, near the same amount. The payout was not large, but you guys WILL like the $1200/month. That's like AM dining out all week.

Yes, it is (was) a pension plan. But it appears that they are not offering a traditional pension payout that includes cola, instead they are offering a fixed annuity.

Wife is going to call Fidelity to get the lump sum amount today.

 

[PWMDMD]

I'd want to know the lump sum amount first.

 

[Astro14]

Gents,

Thanks for all the input.

What I can't figure out is why would Fidelty offer the below options to my wife, but never provide the lump sum payout amount?
1. Individual annuity
2. Beneficiary annuity
3. Fidelity IRA or 401K

Fidelity told my Wife if she takes #3, Fidelity will withhold 20 percent for taxes. We don't plan to use these funds for at least ten years/ 2033.

Leaning strongly towards #3, but of course need the lump sum amount, and if there is a method to avoid the 20 percent withhold.

Withholding qualified money when it’s going to a qualified account makes no sense, and creates a big tax trap for you.

So, number three needs clarification.

This kind of slimy behavior is why I loathe Fidelity.

 

[SC Maintenance]

Gents,

Thanks for all the input.

What I can't figure out is why would Fidelty offer the below options to my wife, but never provide the lump sum payout amount?
1. Individual annuity
2. Beneficiary annuity
3. Fidelity IRA or 401K

Fidelity told my Wife if she takes #3, Fidelity will withhold 20 percent for taxes. We don't plan to use these funds for at least ten years/ 2033.

Leaning strongly towards #3, but of course need the lump sum amount, and if there is a method to avoid the 20 percent withhold.

Re the 20% - your rolling a fixed pension, not an 401K to IRA. Different rules. Don't ask me to explain them, but this might:

Also, do you know why she has to start taking withdrawals now? You can usually wait until 72. Not saying thats a good idea - but it sounded like they contacted her?

Topic no. 413, Rollovers from retirement plans | Internal Revenue Service

Topic No. 413 Rollovers from Retirement Plans

www.irs.gov

 

[andrew_j]

Guessing a $1200/month pension payout this will be $50k -$100k lump sum payout .

We can’t advise ya without the payout.

 

[PimTac]

If this pension is held by Fidelity then I would call them again but ask for a Rollover Specialist. Then ask the question. I had a pension done the same way.

The pension contract will tell the story.

 

[GON]

Re the 20% - your rolling a fixed pension, not an 401K to IRA. Different rules. Don't ask me to explain them, but this might:

Also, do you know why she has to start taking withdrawals now? You can usually wait until 72. Not saying thats a good idea - but it sounded like they contacted her?

Topic no. 413, Rollovers from retirement plans | Internal Revenue Service

Topic No. 413 Rollovers from Retirement Plans

www.irs.gov

SCM,

Thanks- this was a takeaway from the link you provided: The last paragraph is key:

Withholding​

Any taxable eligible rollover distribution paid to you from an employer-sponsored retirement plan is subject to a mandatory income tax withholding of 20%, even if you intend to roll it over later. If you do roll it over and want to defer tax on the entire taxable portion, you'll have to add funds from other sources equal to the amount withheld. Note that the default rate of withholding may be too low for your tax situation. You may choose to provide the payer Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions, to elect to have more than 20% withheld.

You can choose instead a direct rollover, in which you have the payer transfer a distribution directly to another eligible retirement plan (including an IRA). The 20% mandatory withholding doesn't apply in a direct rollover.

 

[ArrestMeRedZ]

Yep, since this situation is a direct rollover, the Fidelity rep either gave you misinformation, or directly lied in order to sell you the annuity.
As I've said before, I like Fidelity, but I go into every situation knowing their reps are salesmen. And my personal goal is never let a salesman sell me anything.

I'd roll it into a self directed IRA, then follow Warren Buffett's advice of putting it into low cost S&P 500 index funds. With the talk of recession, I'd dollar cost average into the fund over the next two years. The cash balance waiting going into the fund can collect interest at 4.5%.

 

[Pablo]

Yep, since this situation is a direct rollover, the Fidelity rep either gave you misinformation, or directly lied in order to sell you the annuity.
As I've said before, I like Fidelity, but I go into every situation knowing their reps are salesmen. And my personal goal is never let a salesman sell me anything.

I'd roll it into a self directed IRA, then follow Warren Buffett's advice of putting it into low cost S&P 500 index funds. With the talk of recession, I'd dollar cost average into the fund over the next two years. The cash balance waiting going into the fund can collect interest at 4.5%.

Is that REALLY the case?

The money was not in a 401K or other similar tax deferred account. It's a pension, from the company.

 

[99Saturn]

Is that REALLY the case?

The money was not in a 401K or other similar tax deferred account. It's a pension, from the company.

N of 1 here but I can say I had a small pension (100% company funded) very early in my career that vested and was eligible for a lump sum when I left or to wait until retirement for monthly payout.

I opted for the lump sum into a traditional IRA and then rolled the traditional into a Roth and paid the taxes. I have been confused reading through the thread why the Traditional IRA roll and no taxes would not be an option for @GON. But I doubt I will see another job during my career that has a pension so my knowledge is limited.

 

[Astro14]

Re the 20% - your rolling a fixed pension, not an 401K to IRA. Different rules. Don't ask me to explain them, but this might:

Also, do you know why she has to start taking withdrawals now? You can usually wait until 72. Not saying thats a good idea - but it sounded like they contacted her?

Topic no. 413, Rollovers from retirement plans | Internal Revenue Service

Topic No. 413 Rollovers from Retirement Plans

www.irs.gov

Didn’t know that. How irritating. So, mandatory withholding, which means unless you have an amount equal to the withholding in cash, you’re taking a tax hit. Ouch.

 

[Pablo]

IMHO it comes down to where and how the money got to this point.

Was it taxed as income or not?

I'm guessing it wasn't funded by his wife. MOST pensions from before were 100% company funded and will be taxed one way or the other.

The above link is talking about eligible retirement plans, not pensions.

 

[ArrestMeRedZ]

Didn’t know that. How irritating. So, mandatory withholding, which means unless you have an amount equal to the withholding in cash, you’re taking a tax hit. Ouch.

No, no, no! The mandatory withholding only is required if you take a direct payment. The tax guidance above, Topic #413 states if you directly rollover into a qualified account (including an IRA) "The 20% mandatory withholding doesn't apply in a direct rollover."
I have something similar to this. CALPERS holds retirement money for me. If I take it directly, there is 20% federal withholding and California gets their cut also. If I roll it directly into an IRA, no federal withholding and no California state income tax. Will pay fed taxes when I withdraw, but no Cali taxes as I am not a Cali resident when I take it out.
Unless there is something different about this employer plan. I would not trust the Fidelity advisor on this. At least get an opinion from a CPA or enrolled agent.

 

[99Saturn]

I'm still not sure why the pension being 100% company funded and not taxed at the time would be an issue to roll to a traditional IRA/401K, company contributions to pre-tax 401k are taxed when the money is distributed, same as and earnings is employee contributions.

Again, not an expert but years ago, that was my exact situation (100% company contributed).

Fairly certain topic 413 link above is specifically addressing indirect rollovers versus direct rollovers and the 60 day rule:

The 60-Day Rollover Rule for Retirement Plans

The 60-day rollover rule allows for tax- and penalty-free rollovers from one retirement plan to another. Lean how 60-day rollover rules work and how to use them.

www.investopedia.com

Indirect rollovers trigger the 60 day rule and the 20% mandatory withholding.

 

[Pablo]

I'm still not sure why the pension being 100% company funded and not taxed at the time would be an issue to roll to a traditional IRA/401K, company contributions to pre-tax 401k are taxed when the money is distributed, same as and earnings is employee contributions.

Again, not an expert but years ago, that was my exact situation (100% company contributed).

Fairly certain topic 413 link above is specifically addressing indirect rollovers versus direct rollovers and the 60 day rule:

The 60-Day Rollover Rule for Retirement Plans

The 60-day rollover rule allows for tax- and penalty-free rollovers from one retirement plan to another. Lean how 60-day rollover rules work and how to use them.

www.investopedia.com

Indirect rollovers trigger the 60 day rule and the 20% mandatory withholding.

NO.
You guys aren't getting this. From your very link.

"The IRS allows tax- and penalty-free rollovers from one tax-advantaged retirement plan or account to another.........."

A pension is NOT a tax-advantaged retirement plan.

 

[Astro14]

No, no, no! The mandatory withholding only is required if you take a direct payment. The tax guidance above, Topic #413 states if you directly rollover into a qualified account (including an IRA) "The 20% mandatory withholding doesn't apply in a direct rollover."
I have something similar to this. CALPERS holds retirement money for me. If I take it directly, there is 20% federal withholding and California gets their cut also. If I roll it directly into an IRA, no federal withholding and no California state income tax. Will pay fed taxes when I withdraw, but no Cali taxes as I am not a Cali resident when I take it out.
Unless there is something different about this employer plan. I would not trust the Fidelity advisor on this. At least get an opinion from a CPA or enrolled agent.

No, I got that.

A fiduciary to fiduciary transaction (e.g. from 401(k) to IRA) doesn’t require withholding, but if you touch the money, the witholding is required. A direct rollover of qualified money is exempt.

But the requirement to withhold when it goes from pension fund to qualified investment, like an IRA, shouldn’t require withholding. It shouldn’t be a taxable event.

The OP’s wife is getting a pension payout.

 

[Pablo]

Pretty easy read:

How to Roll Over a Pension Into an IRA | SmartAsset

Taxpayers can roll over a pension into an IRA even if they choose to continue working. Here’s what to consider before rolling over a pension into an IRA.

smartasset.com

 

[ArrestMeRedZ]

Pretty easy read:

How to Roll Over a Pension Into an IRA | SmartAsset

Taxpayers can roll over a pension into an IRA even if they choose to continue working. Here’s what to consider before rolling over a pension into an IRA.

smartasset.com

So then, if it is a "qualified employee plan" we are in agreement that a direct rollover into a 401k or IRA does not trigger withholding? That is what the guide you posted says.
The only problem is if the employer's plan is not qualified. That is a question to ask the Fidelity rep, and hope you get an honest answer.

 

[jstert]

as jeffkeryk wrote, like much of life, there are both good and bad annuities, of many flavors.

gon, your wife has apparently been offered an immediate lifetime, ten-year certain, annuity. there is far more to annuity world than just this one offered option, which makes me wary of the offer.

with a military connection you may consider a buyer-friendly “flexible premium retirement annuity” from navy mutual aid and/or “annuitylife” from american armed forces mutual aid for the accumulation, “can’t yet decide” phase. sadly usaa apparently discontinued its similar flexible premium deferred annuity. without knowing what other retirement assets, especially pensions, and longterm care and health insurance, are at hand, it’s hard to advise. but a fixed, low-cost, buyer- (not agent-) friendly annuity may be useful for anyone who isn’t hands-on smart with money.

all that said, i would get her pension amount away from where it is and park it somewhere tax sheltered, i.e. rollover ira, until she can decide what to do with it. interest rates have crept up, so you should be able to find something that pays 4% while you decide. better this than just the three options thrown at her now requiring a hurried decision?

using usaa’s immediate annuity calculator for a 60yo female in washington state here is an estimate of her pension’s current value sufficient to purchase a $1200/mo lifetime, ten-year certain, annuity. $246k + is an impressive sum. https://www.usaa.com/annuities/immediate-annuity-calculator/