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When I left my employer many years ago, I took a lump sum for my pension. Now I'm rehired by the same employer, and my service pension may be restored if I make a one time repayment to the pension plan. My question is what the tax implication is for this event. I was told I could not rollover a 401k distribution as the repayment. Therefore, the repayment will come from after-tax money. If I take a lump sum pension distribution again upon retirement, the lump sum distribution will be taxed again. Will my repayment be double taxed, or is the repayment amount deductible from the future lump sum pension distribution? 

For example, if I make a repayment of $50k (which has already been taxed) today to restore the pension, and I retire next year to take a lump sum distribution of $60k. Will the total amount of $60k be subject to tax next year (in which case $50k will be double taxed), or just $10k (= $60k - $50k ) will be taxable? Or is $50k tax deductible in this year's tax return?

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You wouldn't get a deduction on it now, but it would create after-tax basis in the plan. The amount that you repay now would eventually come out tax-free when you take your distribution.

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Think long and hard about this before making a repayment.  There are many potential factors that could influence whether it is a good/bad decision.  Just off the top of my head, some factors might be: (a) whether the maximum allowable benefit is/was reached (or even close), (b) whether the plan's benefit formula has changed since you left, (c) if the plan is not frozen now, what is the likelihood of such occurrence, etc.   Other actuaries may contribute additional concerns.

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2 hours ago, C. B. Zeller said:

You wouldn't get a deduction on it now, but it would create after-tax basis in the plan. The amount that you repay now would eventually come out tax-free when you take your distribution.

Thank you. This is clear.

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48 minutes ago, david rigby said:

Think long and hard about this before making a repayment.  There are many potential factors that could influence whether it is a good/bad decision.  Just off the top of my head, some factors might be: (a) whether the maximum allowable benefit is/was reached (or even close), (b) whether the plan's benefit formula has changed since you left, (c) if the plan is not frozen now, what is the likelihood of such occurrence, etc.   Other actuaries may contribute additional concerns.

The plan is frozen now. I did ask the plan for an estimate of lump sum distribution if I were to retire one month after making the repayment, and the estimated distribution is greater than the repayment, although they won't provide me with a written amount/formula. Is this sufficient to say that it is beneficial for me to make the repayment?  

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