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Question: I'm 75 years old, working part time. The company I work for is going from a pension plan to a 401(k). What I need to know is can I leave that pension money in there? Do I have to take it? Can I take it out percentage-wise like an IRA, which I'm forced to do after age 591/2? -- C.R. in Cincinnati.
Answer: John Harris, a certified financial planner with Cincinnati's Oxford Financial Group, says, in answer to your first question, you can leave your funds in the current plan if the plan document provides for such an arrangement. If your employer is terminating the existing plan, you will be entitled to a settlement equal to the amount of your accrued benefit. You may take a lump-sum distribution and make a direct rollover into an Individual Retirement Account (IRA).
If you elect the direct rollover into an IRA, you would be subject to the minimum distribution rules, which take effect at age 701/2. Either way, the income you receive would be subject to federal and state income taxes. The lump-sum rollover would give you some control over the assets, as opposed to the terminal-funded annuity arrangement.
With the self-directed IRA, you can decide on the allocation of the invested funds, and any amount in your account at the time of your death could be passed on to your heirs.
The terminal-funded annuity arrangement, on the other hand, would allow you to defer taking income while you are still employed.
You also should check to see whether you are eligible to make contributions to the 401(k) plan as a part-time employee. This could be used as an offset if you find yourself forced to take minimum distributions from an IRA.
Before you make your decision, check with your employer and find out your options according to the plan document. Then, decide between the terminal-funded annuity agreement, which guarantees an income to you for life, and the IRA, which gives you more control over your invested assets.
-- Compiled by Perry Brothers
Readers should consider the advice from the Money Panel as general information only. Investors should seek the help of professionals on questions regarding their own portfolios because circumstances might vary.
