Pension lump sum and RMD

[scasale491]

I am getting a lump sum of $697,000 from my pension plan but they want to declare $53,709 as ineligible to

roll over and would require me to pay taxes on this amount . I have been taking regular distributions from this 

pension since 2020 at a $5,900 per month . Why the RMD applied to this .  Should be covered on my monthy withdrawals ? can you explain    [email address removed]

[dmertz · Accepted solution]

You'll have ask the plan.  SEC. 204 of the SECURE 2.0 Act allows the annuity payments from an annuity purchased within a defined contribution plan to be credited toward the RMD that would have applied based on the actuarial value of the pension at the end of the previous year, but it's not clear that this would apply to a pension buyout and it seems that the plan has not done this.  It seems that the ability to do this may be an optional provision of the plan, meaning that the plan might not have to allow this option and might not even be able to allow this until the plan agreement is updated to reflect the new regulations.  If it does apply, without knowing your age or the number of months during the year that you will have received the $5,900, it's impossible to know how much of the RMD for the year might have been satisfied by the pension payments.

[Opus 17]

With a pension (or at least "most" pensions) the payment is based on your life expectancy, so it counts as an "RMD" for tax purposes.  For some reason, the lump sum calculation is giving you more money than the life expectancy payout was calculated to be.  You would have to ask the plan why.

[Opus 17]

I do have one thought that might or might not be relevant.  When my father retired from state employment, he had the option of taking a larger pension that would end on his death or a lower payment that would end on his death or the death of my mother, whichever came second (a survivorship benefit).  Possibly, if he tried to cash that out to roll it over, the IRS would consider that some of the payout was due to the extended life expectancy calculation from the survivor benefit and would not be eligible to roll over to an individual account.