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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19222  
Subject: Re: Pension Follow Up Date: 5/11/2005 12:37 PM
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Author: MaryGoodnight | Date: 5/10/05 9:26 AM | Number: 9767
we've learned this morning, that they're going to push people to take a lump sum cash out of their pensions.

Our household is in the highest tax bracket, so this could hurt.


You should have the option to roll the pension lump sum to a Traditional IRA. Then, you won't pay any taxes until you take it out.

Are there any other disadvantages to managing my own money?

The most important thing when you are managing your own money is to invest conservatively, at first, and not try to hit a home run!! This is critical with retirement portfolios.

The simplest conservative approach I know of is to roll the lump sum to a T-IRA in Vanguard's Balanced Index Fund (VBINX or VBIAX depending on the amount of money). This fund will maintain a 60/40 ratio of Total Stock Market/Total Bond Market. This will give you reasonable growth potential from the equities balanced by the bonds for safety and stability. Leave it there forever, or until you learn more about investing, and decide you want to take either more or less risk. That's what I did with my pension lump sum rollover.

Also, if there is any of your company's stock in any of your qualified plans (pension, profit sharing, 401(k), etc), you may have the option of taking that stock out and paying income taxes only on its cost basis. Then, when you sell it, outside of an IRA, you pay income tax at long term capital gains rate. This can often be a very good way to go, since, if you roll it into the T-IRA, you will pay income taxes at your marginal rate when you take it out. Look up the details under 'Net Unrealized Appreciation' in Pub 575 at: http://www.irs.gov/publications/p575/index.html

Russ
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