Understanding Pension Plan Rollover - What You Should Know

Rolling over your pension plan is something that a lot of retired people have to deal with. Once retirement comes, dealing with your money becomes a very real thing. Before retirement, you need to take care of your money in the best way possible. You may have to deal with rolling over your pension at several different times. Here is what you need to know before you roll over your pension.

Save on Taxes

When you are considering leaving your job that has a pension plan, you should be aware of the tax implications that exist. When you roll your pension over into a qualified retirement account such as an IRA, you will not have to pay any taxes on the distribution of the money. If you just keep the money, you will have to pay an early withdrawal penalty and pay income tax on the money. You have up to 60 days from the time you get the money to move it over into a new account. If you fail to move it in time for the 60 day window, you will lose your tax advantage. Therefore, it is important to move the money quickly or make plans to move it when you are changing jobs.


A very popular type of account to move your money into is an Individual Retirement Account or an IRA. An IRA is offered by many different financial institutions out there. With an IRA, you have complete control over your funds. You can invest in almost anything that you want and move the money between investments as frequently as you want. With an IRA, you get many more choices for investment than with other investment accounts. You can put money into an IRA tax-free, which allows you to grow your account quickly. 


If you still have your pension when you reach retirement age, some pensions allow for you to roll your pension over into an annuity. Depending on how much money you have put back, you can buy an annuity for that amount. The annuity is designed to pay you an annuity payment every month. You can even get a lifetime annuity that pays you a certain amount of money every month for life. Having a monthly income coming in for the rest of your life can take a huge burden off of you. Many retirees are forced to go into a second career once they retire from their first job because their retirement is not enough. With a good lifetime annuity, you do not have to worry about that happening to you.

Some pension plans allow for you to take a lump sum in addition to buying an annuity. Just be aware of the implications of making such a move. The more you take out in a lump sum, the less you will have to buy an annuity with. This means that you will have less money coming in each month. 

Pension Plan Administrator

The pension plan administrator is the individual who is in charge of a company's pension plan and the decisions surrounding it. In some cases, the company might decide to act as its own administrator. However, this generally works only with smaller companies, and as more employees come on board, it can become much more difficult. This individual will be in charge of making sure that enough money is paid into the pension plan by the company. The administrator will also be in charge of selecting the individual investments for the plan and choosing the proper asset allocation for it.

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