Transferring the Pension Lump Sum payment directly to a Traditional IRA as a Direct rollover means you incur no taxable income from the lump sum payment.
If you take the pension without rolling it over, then the entire amount or a portion of the amount becomes taxable income to you, depending how your account was funded. The plan administrator will withhold 20% for federal income taxes if this is a 401(k). If you are age 59 1/2 or older there will be no early withdrawal penalty.
In January of 2020 you will receive a Form 1099-R for either the roll over or for the distribution, whichever you have chosen. The Form 1099-R is reported on your tax return for tax year 2019.
If your disability payment is from Social Security, then some of those benefits probably will also be taxable based on the other taxable income you have received.
Up to 85% of Social Security Retirement/Disability/Survivors benefits becomes taxable when all your other income plus 1/2 your social security reaches:
Married Filing Jointly - $32,000
Single or Head of Household - $25,000
Married Filing Separately - 0
