Periodic payments paid for life or a period of more than 10 years are ineligible for rollover and the taxes on the taxable amount cannot be avoided. Otherwise, you can use the cash for whatever you want, including funding an ordinary IRA contribution as long as you or your spouse have the necessary compensation to support the contribution. An ordinary traditional IRA contribution may or may not be deductible depending on filing status, modified AGI for the purpose and whether you or your spouse is an active participant in a workplace retirement plan.
You can adjust your federal tax withholding by submitting Form W-4P to the pension plan.
