Help with Pension / 401k options

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krannerd
Posts: 117
Joined: Sat Jun 25, 2011 12:05 pm

Help with Pension / 401k options

Post by krannerd »

Hello All,

I've recently ended my relationship with a long term employer and am seeking guidance on options for what to do with my 401k and pension. I'm 39, married and in good financial shape overall (good e-fund, LBYM, etc).

401k: I have good fund choices with low expense ratios. I plan to keep this 401k with the existing MegaCorp for now. Have not confirmed with the company that I cannot do this (but calling them today). Eventual plan will be to roll into a new employer's 401k provided the options are good and expenses low.

Pension: I have the option of taking a lump sum now (or later) or using the pension as normal upon retirement. Given the time frame until my retirement, I am leaning towards taking the lump sum (~$100k) and trying to roll into the 401k plan. The lump sum is actuarially unfair (after having plugged values into immediateannuities.com). The pension is well funded and expected to grow faster than inflation even with no additional credited service. I would prefer to do the lump sum and roll into 401k so that I can keep going with my backdoor Roth annually.

Questions:
Is there anything else that I should consider when ending my employment and managing my retirement assets?
If I roll my pension into an IRA...does this mean I cannot do a backdoor Roth until I've converted the entire balance of the pension to a Roth?

Thanks in advance for advice.
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CAsage
Posts: 1977
Joined: Sun Mar 27, 2016 6:25 pm

Re: Help with Pension / 401k options

Post by CAsage »

If you roll your (pretax) pension into an IRA...it means you must pay taxes on the total prorated conversion, it does not mean you cannot do a backdoor Roth. You might not want do, depending on your tax bracket, it takes a lot of the luster off a backdoor Roth. Rolling your pension into a new 401K would keep that option clear (and tax free).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Help with Pension / 401k options

Post by cherijoh »

krannerd wrote:Hello All,

I've recently ended my relationship with a long term employer and am seeking guidance on options for what to do with my 401k and pension. I'm 39, married and in good financial shape overall (good e-fund, LBYM, etc).

401k: I have good fund choices with low expense ratios. I plan to keep this 401k with the existing MegaCorp for now. Have not confirmed with the company that I cannot do this (but calling them today). Eventual plan will be to roll into a new employer's 401k provided the options are good and expenses low.

Pension: I have the option of taking a lump sum now (or later) or using the pension as normal upon retirement. Given the time frame until my retirement, I am leaning towards taking the lump sum (~$100k) and trying to roll into the 401k plan. The lump sum is actuarially unfair (after having plugged values into immediateannuities.com). The pension is well funded and expected to grow faster than inflation even with no additional credited service. I would prefer to do the lump sum and roll into 401k so that I can keep going with my backdoor Roth annually.

Questions:
Is there anything else that I should consider when ending my employment and managing my retirement assets?
If I roll my pension into an IRA...does this mean I cannot do a backdoor Roth until I've converted the entire balance of the pension to a Roth?

Thanks in advance for advice.
It is not a slam dunk that a new employer's plan will let you roll in the pension and prior 401k plan. This is one of those cases where the plan rules trump what the IRS permits.

What do you mean by "actuarial unfair"? Immediate Annuities usually shows that you either need more money than your lump sum to get the same benefit OR that if you invest the lump sum you would get a lower payment. So the norm is to favor the pension over the lump sum, but that doesn't mean it is actuarial unfair - you need to take the markup by the insurance companies on the open market into account.The exception would be if your employer has some early retirement formula related to age and years of service. Companies can ignore that when computing the lump sum payment. That happened to me with a pension buyout offer from my former company - they offered a lump sum that was actuarial fair if I were eligible to start my pension at 65, but was a very poor offer for me since I am eligible to get the full pension at 60.

Also, are you comparing apples to apples - e.g., the same survivor benefits?
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