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How can I avoid taxes on my pension if I retire at age 55 ? | Yahoo Answers pension age 55

How can I avoid taxes on my pension if I retire at age 55 ? What kind of rollover or plan can I use so I can avoid paying taxes on my 30 year pension when I retire at age 55 ? I have been told I will have to pay penalties and taxes regardless if I am not 591/2 yrs old. Is this correct ? THanks Follow 5 answers 5 Report Abuse Are you sure you want to delete this answer? Yes No Sorry, something has gone wrong. Trending Now Jinder Mahal France wildfires Howard Stern Lana Del Rey Msrp Lincoln Navigator Cheap Airline Tickets Carl Lentz Christina Aguilera Dustin Johnson Ford F-150 Answers Relevance Rating Newest Oldest Best Answer:   First of all, it is not likely that you will ever completely avoid taxes on your retirement plan money. In your case, what is going to happen if you WITHDRAW all or part of the money before age 59 and 1/2, you will face taxes as well as a 10% withdrawal penalty. The thing to avoid here is that penalty. There are other reasons to wait until you are older to withdraw retirement money (ie, theoretically when you are older and have less income you will pay less tax on retirement withdrawals), but this is something you should discuss and plan out with an accountant.

When you retire at the age of 55, you will need to decide where you want to open an account to hold your retirement funds. If you have a bank (ie, Bank of America, Chase, Wachovia) or a brokerage house (ie, all banks mentioned previously have brokerage/investments, or Fidelity, Charles Schwab, etc) this would be the place to start.

Tell your financial advisor/representative at your chosen institution that you need to do a "roll-over" of your retirement plan. You will have to open a retirement account (most likely a Traditional IRA, not a Roth because you will have to pay back taxes and depending on the value of your account that could get ugly) with your new institution, and they will have you fill out some forms instructing your former employer to "roll over" your funds to the new institution. There is very little work on your part (if done correctly). You might have to sign something from your former employer authorizing them to do the rollover. IMPORTANT: Instruct your employer to transfer the funds directly to the new bank. You don't want to touch a check, the funds, nothing. Just roll it over to the new bank please, thank you! If you take the funds out yourself, you will not be taxed or penalized immediately, but if you don't get those funds into a qualified retirement account within 60 days of withdrawal, bam, the IRS gotcha!

Just remember:

1. Taxes only happen when you withdraw money from the account
2. Putting the money in a new retirement account at a bank or brokerage house does not constitute a withdraw as long as you do it quickly and correctly, so you won't be charged taxes if you do this
3. Penalties apply when you withdraw before the age minimum, which sounds like 59 adn 1/2 with your type of account

So when you retire, ROLL OVER those funds into an IRA/Retirement Account, and do yourself a favor sooner rather than later and invest in a consultation with a ce pension-age-55-rid-0.html. montblanc pen refills amazonrtified public accountant, and do some long-term planning with them! Source(s): Read this whole page. After I answered your question above, I realized I could have just sent you this link!

http://www.irs.gov/faqs/faq-kw10.html e.estlinz · 1 decade ago 1 Thumbs up 0 Thumbs down Report Abuse Comment Add a comment

Submit · just now No it isn't correct.

First I assume when you say pension you are talking a 401K or an IRA. If you really mean a pension you can start taking payments now and you will pay normal income tax - no penalties.

If you are talking 401K or IRA you can do two things.

Any investment firm such as Fidelity can take care of this for you. There is no fee if you put the money into their funds.

1. Roll it into a rollover IRA. Any investment company can do it for you. You pay no taxes and the earnings are tax free until you start withdrawing money. You must start withdrawals by the year you turn 70 and 1/2.

2. If you need the money you can start withdrawing it now if you take in in equal installments geared to run out at the end of your life expectancy based on IRS actuarial tables. You pay ordinary income tax on the withdrawals. No penalty or interest. You can't change the amount of withdrawals until you are over 59 1/2 years old. Norm · 1 decade ago 0 Thumbs up 0 Thumbs down Report Abuse Comment Add a comment

Submit · just now I am not sure about the penalty & taxes, it depends on which country u are from. Go for the internet business which require less of your time and the one that will not make you feel headache with web designing or which require IT knowledge. Second, choose the internet based company which offer you the opportunity and at the same time giving you the convenience to start the business where all the things are automated. Third, choose the business which does not require big money to start it. Think again, when you are earning money from the internet, you have the chance to get rid from an income tax.

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Submit · just now If you are speaking of IRA, yes you must be 59 1/2 to begin withdrawls. Yes there are penalties and taxes before that age., except for emergencies.
After 59 1/2 even then withdrawls will be included in your total income and taxed accordingly. Remember IRA contributions were not taxed. The withdrawls will be calculated based on your expected mortality. You do not have to make withdrawls at 59 /1/2, I don't know the absolute required age. I think it changed. Around 70 1/2 I think. ed · 1 decade ago 0 Thumbs up 0 Thumbs down Report Abuse Comment Add a comment

Submit · just now believe that applies to 401d and IRA's for penalties. Taxes on gains yes you will pay. Regular pension regular taxes retired_afmil · 1 decade ago 0 Thumbs up 0 Thumbs down Report Abuse Comment Add a comment

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montblanc pens worth it Ready, Set, Go! When To Start A Pension Payout? Feb 16th, 2016 by jblankenship .

The question comes up often: I’m ready to retire at age 55, and I can begin collecting my pension right away. Should I? The amount of the pension increases to almost double if I wait to start collecting at age 62, and two-and-a-half times if I wait until age 65. What’s the best way to do this?

Obviously, there are a lot of factors that will go into the answer to such a question, so right off, it’s hard to say for sure, but here are the basics of making this decision:

These types of pensions are based on the employer’s assumption about your life expectancy. If you live to exactly the expected age, the cost to the employer will be roughly the same no matter which option you choose. You just need to do the math – bigger payments later are made for (expected) fewer years.

It goes without saying that if you were sure you’d die at age 60, you would be much better off starting your pension payout as early as possible. On the other hand, if you live longer than expected, starting your payout as late as possible will likely make up for the late start. But at what projected life span does this make sense?

An Example

Let’s start with an example: Say at age 55 you could begin a pension paying $1,229 per month, or at age 62, $1,990 per month, or you could begin receiving $2,263 per month if you wait to age 65 to begin collecting. For the purpose of simplicity, the example will not factor in taxes or any cost-of-living adjustments.

At age 70, your first option is still ahead of the other two. So, if you were to die before age 71, the first option, collecting at age 55, works the best, because you would have collected a total of $221,220 by that point, versus $214,920 for the age 62 option and only $162,936 with the age 65 option.

However (and isn’t there always a however in life?) – if you lived beyond that age, the other options begin to take the lead. If you lived to at least 71 but not to age 85, the age 62 option would work out the best. Anything from age 85 on up, you’re best off to wait until age 65 to get started.

What about spouse benefits?

The above example considered only a single life – what about if you have a spouse who may be dependent on your pension in retirement? In those cases, you have the option of choosing a “joint & survivor” pension option. These are often presented in terms of the original pension amount and an amount to be paid to your surviving spouse. The amounts here are based on your age as well as your spouse’s age, since the actuarial calculations have to account for two lives receiving the money instead of just one.

As we’ve discussed in other articles, for a couple who are both age 65, there is a 72% chance that one of them will live to at least age 85, and a 45% chance that one will live to age 90. These factors cause a further reduction in the pension amounts.

So here is a sample table illustrating the benefit amounts for some example options using Joint & Survivor (J&S) pension amounts, as well as a 10-year certain annuity:

Age 55 62 65 Single Life $1229 $1990 $2263 25% J&S $1202 $1921 $2174 50% J&S $1190 $1887 $2125 75% J&S $1150 $1797 $2015 100% J&S $1126 $1741 $1944 10-year Certain $1219 $1944 $2126

As you can see, the more pension that is available to the surviving spouse, the lower the overall pension payment. This is due to the fact mentioned earlier that when considering the lives of a couple the actuarial chance of one spouse living longer is increased.

The various benefit level differentials are offered in order to allow the pension recipient to provide a benefit for his or her surviving spouse, depending upon the perceived future need for benefits. The single life option provides no further benefits after the death of the pension recipient, while the 100% J&S option continues to provide the same benefit to the surviving spouse after the death of the pension recipient. The other percentages provide a benefit to the surviving spouse, but in a limited amount.

The 10-year Certain option provides a level benefit for the greater of 10 years or the life of the pension recipient. So if the pension recipient died the day after he or she started the pension, it would be paid to his surviving beneficiary or his estate for 10 years. If the recipient lived longer than 10 years after starting the pension, it will be paid to him or her until death but no surviving spouse benefits would be paid.

The title of this article is “When” to start your pension payout, so we won’t reflect on the reasons why you might choose one type of benefit over another, we’ll just run some numbers to see what timeline provides the best benefit amounts for the various payout options.

We covered the crossover points for the Single Life option above. If we look at the 100% J&S option next, we see that the outcome is very similar to the Single Life option, but delayed a bit. If the pension recipient chooses to start his or her pension at age 55, this will provide the most benefits if either member of the couple lives to age 71. This is because the benefit paid out is exactly the same before and after the death of the recipient. After age 71, the age 62 option pays the greatest amount of benefits up to the point where either member of the couple lives to at least age 89. This is a bit later than the Single Life option – and a statistically significant period of time. From that point forward the age 65 starting point pays the best.

So, according to averages, the age 62 option is an attractive choice for this payout level, since the chance of one member of the couple living beyond age 90 is (as we noted above) approximately 45%. But still, the age 65 option will provide the most benefits from age 90 onward, so it still may be the best option for your situation.

Looking at the other J&S options – at this point we need to start thinking about when the first (recipient) spouse will die, because after his or her death the benefit amounts are reduced, often dramatically. In all cases if the recipient spouse lives beyond age 90, waiting to age 65 to start is superior. But if the recipient dies earlier, the results start to favor other options.

If the recipient spouse dies at age 73 for example, the age 62 option provides the greatest benefit for all 3 of the J&S options (other than the 100% option). Any age between 75 to 85 produces (essentially) the same outcome – the crossover point is around age 100 for a death age of 85 at the 75% survivor benefit level. Any earlier death (before age 73) results in the age 55 start age being the best choice.

And The Point of This Is…?

The point of all this, well actually there are two points: First – the answer to the question of when to take the pension depends on what you’ll do with it, and whether or not you need those funds right away. Couple those factors with how long you’ll live, as well as how long your spouse will live (if you have one). If you’ll need a larger amount to live on, such as if you don’t have any other retirement savings, the longer you can wait before starting your pension payouts the better, especially if you’re in good health and expect to live beyond age 80.

The second point is that, even if you have a pension available to you, it is definitely in your best interest to develop a savings strategy in addition to the pension. And this is doubly important if your pension is fixed (no cost-of-living adjustments) as in our example.

The best way to answer this question is to gather all of these factors, along with considerations regarding investment risk tolerance, tax implications, family longevity and your own health, as well as your lifestyle costs, healthcare costs, and propensity to continue working after your official “retirement” – at whatever age that might be – and then run the calculations.

Share, tweet, print, email, like or pin this post: Pocket Tweet Print Email Like this: Like Loading... Related posts: Maximizing Your Pension Using Term Life Insurance Social Security Filing Strategies for Surviving Spouses Wealth Defense: When Should You Start Social Security Benefits? Posted on Feb 16th, 2016 by author: jblankenship . 4 comments already - add to the conversation! Posted in: early retirement , pension , retirement . Tagged: pension · retirement



If I retire in '14 at age 55 and roll the lump sum pension into my 401k will I need to pay 10% penalty on withdrawals?

401k is with current employer

Sep 17, 2013 by Bob from Batavia, IL in Financial Planning  |  Flag 5 Answers  |  6 Followers Follow Question 9 votes Michelle L. Ash, CFP®, CASL® Level 17

Hi Bob, Good question! Perhaps you've picked up on a rule that gives you a way around the normal 10% penalty that typically applies when you make withdrawals prior to age 59-1/2. If you make your transaction as you've indicated: 1) roll over lump sum to 401(k), 2) retire and LEAVE 401(k) where it is with current employer, and 3) take a withdrawal from your 401(k), you will avoid the 10% penalty. The reason is because there is an exemption from penalty between the ages of 55 - 59.5 when you take a withdrawal from a former employer's retirement plan.

The caution I'd make is this: if you intend to make these penalty-free withdrawals prior to age 59-1/2, DON'T roll the money over to an IRA. If you do, you will lose that penalty-free exemption. Now, others may tell you there's a way you could deal with that issue too, and there is - it's called a Section 72(t) withdrawal - but it's complicated and has some risks. Best option: keep the money where it is, or decide what amount you will need for withdrawals prior to age 59-1/2, and leave that amount in the 401(k); rollover any excess balance if your plan allows and if that's important to you.

Michelle Ash http://www.wealthguards.com

Comment   |   Flag   |   Sep 17, 2013 from Jacksonville, FL
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8 votes David A. Kring, CFP® Level 16

As long as the lump sum is rolled directly into the 401k via direct transfer to the plan or you send in a rollover check yourself within 60 days, you would not have to pay the 10% penalty for pre 59 1/2 withdrawals. However, you need to make sure of two things before you do this. First, does your 401k accept outside rollovers (unless you are actually referring to your own personal IRA that you opened, which then would be fine) and Second, you must make sure that your pension lump sum is what is called qualified money in order to roll over that amount. I hope that helps.

2 Comments   |   Flag   |   Sep 17, 2013 from Malvern, PA David P. White

I believe you are commenting on the 20% mandatory tax withholding that occurs if the 401k balance is distributed directly to the participant instead of rolled over to an IRA. Bob’s question relates to the 10% federal tax penalty on withdrawals from the IRA Rollover prior to age 59.5. Thanks for clarifying in your follow-up.

3 likes |  Flag  |  Sep 17, 2013 near San Diego, CA David A. Kring, CFP®

No, I was referring to the penalty for early withdrawal, but I think Michelle may be onto what his question was really aimed at; not always easy to tell from the question

Flag  |  Sep 17, 2013 near Malvern, PA
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8 votes Jonathan N. Castle, MSFS, CFP® Level 20

Hello Bob,

The law allows you to make withdrawals from a 401k account, without paying the 10% early withdrawal penalty, as long as you are no longer employed by that company. Since true lump sum pension money is generally "qualified" or pre-tax money, these dollars can usually be rolled into a qualified retirement plan such as a 401k, as long as the plan accepts rollovers. Checking your Summary Plan Description documents will verify your plan features; you can usually find this on your plan's website. If not, request it from HR.

If, however, you roll money from a lump sum pension payout, or from a 401k, into an IRA account - then you lose this early withdrawal feature. Since withdrawals from IRA's prior to age 59 and 1/2 typically cause a 10% penalty, this is one of the few times it makes sense to keep your money in a 401k after you've retired. You might consider leaving only the amount that you expect to need over the next 5 years in your 401k, so you can use those dollars for your income needs - and roll the remainder of the balance into an IRA where your investment options are unlimited, and your investment expenses are often (but not always) lower.

Jon Castle http://www.Wealthguards.com

Comment   |   Flag   |   Sep 17, 2013 from Jacksonville, FL
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5 votes David A. Kring, CFP® Level 16

let me also clarify, that you are just referring to only getting penalized on the rollover to the 401k and are not planning on withdrawing the money right after you do that.

Comment   |   Flag   |   Sep 17, 2013 from Malvern, PA
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1 vote Michael Steven Greenberg, CFP® Level 20

Bob, if you do it as you say, roll pension into 401(k) then retire – be sure employment is terminated, you would not have a 10% penalty; there would be 20% withholding, but you will either owe it partially or in full anyway.

But here’s another thought. Keep only what you think you will need for the next 5 years of distribution in the 401(k) – keep it over $5000 or they can force a distribution. That may mean you can roll the lump sum pension into an IRA. You may also do a partial 401(k) rollover into an IRA, if allowed. This will give you some control over fees and investment choices.

Comment   |   Flag   |   Sep 19, 2013 from Delray Beach, FL
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