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ptotheizzo3
New Member

My former employer is offering to buy out my pension. I am 36 years old and wondering the taxes and penalties for taking the early payment?

 
5 Replies
NCperson
Level 15

My former employer is offering to buy out my pension. I am 36 years old and wondering the taxes and penalties for taking the early payment?

ask them how much is taxable - hard to answer the question without that information.   Normally the tax will require a 10% penalty because you are under 59.5 years old 

Anonymous
Not applicable

My former employer is offering to buy out my pension. I am 36 years old and wondering the taxes and penalties for taking the early payment?

taxes will also depend on your other income.   

 

 

 

do you need the money?  

 

if not, why don't you see if your former employer will do a direct rollover into an IRA you establish.    you avoid income taxes and penalties.    if it wont, you still have the option of putting the $ you get into an IRA, though you would have to make up any withholding to completely avoid taxes and penalties.  if you can't make up the difference you would only be taxed on the amount not rolled over + the 10% penalty.  

ptotheizzo3
New Member

My former employer is offering to buy out my pension. I am 36 years old and wondering the taxes and penalties for taking the early payment?

I certainly know it’s not my best option for the maximum value, just curious roughly what I might end up with.

 

Household income with my wife should be in the $125,000 range.

Anonymous
Not applicable

My former employer is offering to buy out my pension. I am 36 years old and wondering the taxes and penalties for taking the early payment?

if when the taxable portion is added to your other income the total doesn't exceed $168,000, 22% in taxes       between 168k and 321k  24%  + the 10% penalties and as i said there may be state income taxes.  

 

 

put another way you'll end up with about 66% to 68%, but even less if state taxes apply.   

 

since I know nothing about your actual tax situation,  this should only be use as a rough guide 

 

 

you could try TT taxcaster, some items are based on 2018, but this might still give you a better estimate

https://turbotax.intuit.com/tax-tools?priorityCode=1923900000&PID=2278782&cid=all_cjtto-2278782_int&...

dmertz
Level 15

My former employer is offering to buy out my pension. I am 36 years old and wondering the taxes and penalties for taking the early payment?

Assuming that this a a qualified pension, the plan is required to provide you with a statement describing your rollover options unless you waive that obligation.  Among the options are to take a distribution, subject to tax and early-distribution penalty on the taxable amount (the entire amount unless you have made after-tax payments into the pension plan), roll the money over to another retirement account like a traditional IRA (nontaxable) or a Roth IRA (taxable, but not subject to an early-distribution penalty), or some combination of keeping some and rolling over some.

 

Choosing not to roll the money over and paying the early-distribution penalty is usually not the best long-term financial decision.

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