IRA ROLLOVERS FOR LUMP SUM PENSION PAYOUTS

Give those dollars the opportunity for further tax-deferred growth.

A big payout leads to a big question.  If you are taking a lump sum pension payout from Lucent (If offered by your company), what is the next step for that money? It will be integral to your retirement; how can you make it work harder for you?

Rolling it over might be the right thing to do.  If you don’t have substantial retirement savings, your Lucent lump sum option (If offered by your company) may be just what you need. The key is to plan to keep it growing.That money shouldn’t just sit there.

Even tame inflation whittles away at the value of money over time. Most corporate pension payments aren’t inflation-indexed, so those monthly payments eventually purchase less and less. Lump sums are just as susceptible: if you receive $100,000 today, that $100,000 will buy 50% less by 2028 assuming consistent 3% inflation (and that is quite an optimistic assumption). 

Putting it in the bank might cause you some financial pain.  If you take your Lucent lump sum payout (If offered by your company) and deposit it, all that money will be considered taxable income by the IRS. (There are very few exceptions to that rule.) Moreover, you won’t get the whole amount that way: per IRS regulations, your employer must withhold 20% of it.

Don’t you want to postpone paying taxes on those assets?  If you transfer the lump-sum distribution into a traditional IRA, you can postpone paying taxes on those funds. It's possible to delay paying taxes on a distribution that has already been paid to you by rolling over the taxable portion to an IRA within 60 days of receiving the payment.

In doing so, you are keeping those assets in a tax-deferred account. They can be invested as you like, and that money will not be taxed until it is withdrawn. (You may only transfer a lump sum distribution from a company pension plan into a traditional IRA – you may not transfer it to a Roth IRA.)

If you are considering taking a lump sum payout, make sure you position that money for additional tax-deferred growth. Talk to a financial professional who can help you with the paperwork and get your IRA rollover going.

Citations.

1 - money.cnn.com/2012/09/01/pf/expert/pension-payments.moneymag/index.html [9/1/12]

2 - www.kiplinger.com/article/retirement/T037-C000-S002-pensions-take-a-lump-sum-or-not.html [9/11]

3 - www.irs.gov/taxtopics/tc412.html [1/4/13]

4 - www.fool.com/retirement/manageretirement/manageretirement2.htm [1/21/13]

Before finalizing any estate plan, it is worth examining how Lucent's employer-sponsored benefits fit into the broader picture. One key fact: Lucent maintains a defined benefit pension plan that has been frozen to new benefit accruals -- meaning the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents, so the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents. Lucent does not appear to offer a formal retiree healthcare program, making healthcare coverage planning an important consideration if you retire before age 65. Because the specifics of your pension benefit, retiree healthcare eligibility, and any matching contributions depend on your individual employment history and plan documents, We encourage you to review your Summary Plan Description (SPD) or speak with Lucent's HR or benefits team for the most current details.