I'm considering taking a buyout on my pension before my 60th birthday, then working another job till 62 before collecting Social Security. Can I roll that over into annuity or an IRA and not be taxed? And if need be, can I use a portion of that money to pay some bills off?
You can “roll over” the company pension to a “Rollover IRA” or an appropriate IRA annuity with no tax consequences. If you wish to take a distribution of some or all of the funds, and you are older than 59 and a half, then only income taxes would be due on the distribution. There would be no penalties assessed. If you’re under 59 and a half, besides income taxes, the distribution would be subject to a 15 percent penalty for a premature distribution. If the company’s plan was a Roth IRA, then the distribution would most probably not be subject to tax. If you’re 59 and a half, and if the distribution was utilized for certain qualified actions, then the distribution would not be subject to any penalties.
You should consider retaining the pension funds in the company plan for management purposes. If funds are needed, borrow funds from the account, thus avoiding any potential penalties or income taxes.
I would suggest that a CPA be consulted to perform an analysis of what works best in your situation.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Nicholas J. Crocetti, CPA, is director of tax advisory solutions with CBIZ MHM LLC in Plymouth Meeting, Pa.