Las Vegas Ex-plasterer Early Ret @ 32 Needs Info On Cashing In Pension

[Guest vegasgem]

What options do I have in receiving a lump sum from a direct distribution payment of my joint pension trust fund, now that I am no longer a union employee? I am 100% vested, 32 years of age and out of the trade for 4 years.

[QDROphile]

If you have the ability to receive a lump sum -- which would be a bit unusual for a union pension fund -- one of the best options is to roll over the distribution directly to a traditional IRA. You may have other options that make sense.

Among the things you should consider in making you decision are: (1) Do you intend to continue saving the money for retirement? (The best abstract answer is affirmative). (2) Can you manage the investment of the money or do you need to have it managed? (3) Should you convert the traditional IRA to Roth IRA? The answers depend on your personal circumstances.

[Guest vegasgem]

Thank you for replying! The problem in this case, is it's my boyfriend who is the ex-union member. He quit working 4 years ago and works from home part time in unrelated field. We have need of the money now, and he wants to close his IRA with the union's 401k plan and receive all his money vested ( some $27,000.00 ) in one lump sum distribution payment. This will cost him over a third of that money in taxes and penalties. I would of course prefer for him to minimize that cash loss, but I don't know how he would be able to do so, and still get the greater portion of his money paid to him at once. Any thoughts? Thank you!

[QDROphile]

If you want the money, you pay the taxes, including the extra 10% if under age 59 1/2.

You at least appreciate how much it costs to get this money now. The money is far more valuable if you allow it to grow tax deferred. Try to find some way to avoid use of the money.

[Guest vegasgem]

Not to beat a dead horse, but I can't help trying to find a less taxing, pardon the pun, alternative solution, because he is determined to get his money NOW. How feasible would it be to rollover to a bank IRA, or interest bearing checking account ( is that still taxed like a lump sum? ) with the expectation of a loan from the banking organization based solely off of the capital deposited? I don't know the logistics or terms...I'm asking if there is any way similar to receiving the money now, even if it must be paid back, to reduce the tax loss. The smart way to do it would be to leave the money alone, but unfortunately this is not an option. Thank you!

[QDROphile]

You can't borrow against an IRA. You may be able to borrow from the 401(k) plan where the money is now, but I would not count on it. You would be able to borrow only half of the balance, at most. Borrowing has more subtle drawbacks. Search for discussions about borrowing from 401(k) plans in other threads on this site.

[Guest benji]

What do you need the money for? Is it a hardship of some kind. There are certain exclusions from the 10% penalty imposed by the IRS.