Lump sum retirement

[Kittencat]

Pennsylvania

I'm considering retiring from the state of PA with "full" retirement benefits in 4/06; however I will not be age 55 until 4/07. I don't understand why I can't delay receipt of my lump sum until 1/07 without paying the additional 10% federal excise tax. I would be retiring and receiving a monthly pension in 4/06 but delay receipt of the lump sum until 1/07. The 1040 section/question on this asks if you received a lump sum distribution and if I don't receive the lump sum distribution until 1/07 when I'm turning 55 in 4/07 then why would I be penalized now? Thanks.

 

[abezon]

Because Congress said so.

 

[Snipes5]

If you don't receive the lump sum until 07, that will not affect your 06 taxes.

Snipes

 

[Kittencat]

See - this is the problem - I'm constantly getting differing opinions.


Abezon, WHERE does Congress say this praytell?

Snipes, what are you basing your answer on?

Thanks.

 

[abezon]

IRC 72(t)(2)(A)(v).

Because income is taxable in the year actually or constructively received.

Easy solution -- have your lump sum payment rolled directly into an IRA, so that no taxes are withheld. Withdraw it whenever you want. Pay a penalty if you withdraw before 59 1/2.

Easier solution -- keep working until you're 55. I take it the pension administrators give you a choice between lifetime annutity & lump sum upon separation?

 

[Kittencat]

Thanks - the "constructively received" makes a little more sense now. I really don't want it tied up in an IRA 'till 59 1/2. There's another section of 72T that says I can annuitize so much annually - draw on the IRA in other words before 59 1/2. Still trying to decide...

I will receive a lifetime annuity in addition to the lump sum.

Thanks again.