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Posted by jtamchay on February 3, 2008, 3:27 pm
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male,62 on February 28, 2008; has ability to take the pension he earned
from a defined pension plan.. should he take lump sum, discounted so wife
would get a share after his death, or just wait til full retirement.
male is working full time, will not take early retirement, and is making
115,00.00 per year...has a 401 with present employer and Roth account for
himself and spouse. Wife is not employed, has no income and will not
receive any social security as she was never employed and is age 65.
Need to know if this money would just be categorized as ordinary income
and added to taxable income for the years once he takes it...or is there a
way to take this and shelter it in a fund etc. to protect it while it
earns.
Any suggestions?
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Posted by Mark Bole on February 3, 2008, 4:12 pm
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jtamchay wrote:
> male,62 on February 28, 2008; has ability to take the pension he earned
> from a defined pension plan.. should he take lump sum, discounted so wife
> would get a share after his death, or just wait til full retirement.
Is lump sum your only choice, or could you take regular monthly payouts?
If the latter, are they indexed for inflation?
> male is working full time, will not take early retirement, and is making
> 115,00.00 per year...has a 401 with present employer and Roth account for
> himself and spouse. Wife is not employed, has no income and will not
> receive any social security as she was never employed and is age 65.
If you die, or get divorced after ten or more years of marriage, she
will get SS based on your earnings record.
Presumably she owns some of your marital property, and is the heir or
beneficiary of the rest, so she should be well provided for even without
any spousal pension.
> Need to know if this money would just be categorized as ordinary income
> and added to taxable income for the years once he takes it...
Yes, assuming you never contributed after-tax dollars. I am not aware
of any way to avoid tax on this money, but of course it's better to have
money and pay tax on it than not have it.
> or is there a
> way to take this and shelter it in a fund etc. to protect it while it
> earns.
Protect it from what? Inflation? Lawsuits? Loss of capital due to
poor investments? Taxes?
Ordinary stocks and bonds (capital assets), annuities, long term care
insurance, gifts, college aid for descendants, tax-exempt bonds, rental
or investment real estate -- any or all of these might be good places to
park your money for the long haul. Or, perhaps your wife would like to
start a business or income-producing hobby and could use some start-up cash?
-Mark Bole
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by joetaxpayer on February 3, 2008, 4:54 pm
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Mark Bole wrote:
> jtamchay wrote:
>> Need to know if this money would just be categorized as ordinary income
>> and added to taxable income for the years once he takes it...
>
>
> Yes, assuming you never contributed after-tax dollars. I am not aware
> of any way to avoid tax on this money, but of course it's better to have
> money and pay tax on it than not have it.
A lump sum present value payour from a defined benefit plan should be
eligable for a rollover to an IRA. If so, no taxes are due, and you have
flexibility for withdrawals, and potential for my favorite tax planning
strategy, the timed, paced Roth conversion.
The one risk and one warning is the transfer should be made into an IRA
waiting to receive it, and done as a direct rollover. The check I
received was made payable directly to my broker, "Charles Schwab for
futher deposit into the acccount of JoeTaxpayer". This way, there is no
risk of running afoul of any rollover rules, and having the money become
fully taxable. Of course, you then need to decide how to actually invest
these funds, but that was not the OP's question, so i won't go there.
JOE
www.blog.joetaxpayer.com
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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