Company Pension Plan is closing offering Pension transfer of entire amount or part to 401k OR (withdraw all or part) as lump sum pay out. When age over 59 1/2 How do we determine max partial withdrawal keep AGI levels below Married filing jointly

cyberchipz · ‎February 12, 2021

For 2021, Employer is offering one time opportunity to either transfer all or part of Pension Plan to 401k, or take all or part as a lump sum payment. Age is over 59 1/2. We want to take a partial lump sum. How do we determine maximum partial payment we could take from the retirement, such that it will not increase our Maximum Adjusted Income level over current bracket at 25,000 taxable income (line 15).

We are married filing jointly, if our 2020 taxable income was 25,000 (line 15) what is the maximum pension we could withdraw that will include automatically 20% (no penalty) withheld in that payment, that would not increase our taxes owed above the 20% withdrawn?

What max amount could we take from retirement as lump sum if we want to get a partial refund of the 20% taxes automatically withheld based on current AGI above of 25,000?
What max amount could we take from retirement as lump sum if we don't expect any refund of 20% taxes withheld and use all money withheld to pay 2021 taxes and owe no more?

PS: I will be using Turbo Tax Deluxe in 2021 as I have every year for the past 7+ years.

AmyC · ‎February 12, 2021

Well, I will help with links and facts. We don't do tax planning here on purpose, because things can and do change. So, I suggest you look at:

start here to keep up with your correct tax bracket at TurboTax Bracket Calculator.
You can use the W4 planner in the program under other tax situations.
You can also use the IRS W4 planner
and the Intuit Tax Planner and Analyzer anytime throughout the year.

There may be some non-employees that jump in with more answers.

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View solution in original post

fanfare · ‎February 12, 2021

do not have taxes withheld. That is a big mistake.

Your lump sum must be set up as a trustee-to-trustee transfer of the entire balance to your new IRA custodian.

It is a tax-free operation (Rollover).

cyberchipz · ‎February 13, 2021

@fanfare I will keep it in mind not having taxes withheld; however, if I make a partial, instead of lump sum withdrawal, I believe the 20% tax withdrawal is automatic and; I don't think we have a choice about that; but, I will ask. Yes, any remaining balance not taken out of the pension will be transferred, tax free (rollover) to a 401k account.

Unless you're referring to not taking out the tax, when we would use a Roth IRA account for the balance we don't withdraw; and in that case; yes, I agree, it wouldn't suit our needs.

cyberchipz · ‎February 13, 2021

@AmyC I will check out the references you gave; and if I need no further help; I will make this as the best answer.
I was wondering when we will know AGI Taxable levels for 2021? Is that known now? We have only 2-3 weeks to make our decision. Is there someone at Turbo Tax that will help with planning; I presume for a fee of course?

I am presuming that I could buy in at, up to, maximum for married couple into one type or another IRA @ I believe $14,000 ($7K + $7K) Married, to reduce tax bracket, if my calculations are not too far off for that year, provided I do it in a timely manner before end of 2021. Near as I can figure, we definitely want to avoid going from 12% to 22% tax bracket.

Company Pension Plan is closing offering Pension transfer of entire amount or part to 401k OR (withdraw all or part) as lump sum pay out. When age over 59 1/2 How do we determine max partial withdrawal keep AGI levels below Married filing jointly

Retirement tax questions

Retirement tax questions

Retirement tax questions

Retirement tax questions