No. of Recommendations: 4
Although the name above the front door was changed 6 times over the course of my employment, I was covered by a pension plan that provided the option of having the pension distributed in a lump sum.

What I and a colleague noticed over several years is that the value of the lump sum seemed to change over time and was related to current interest rates. The lump sum was greater when interest rates were low and lower when interest were high. Basically, the lump sum was the cost of a Single Premium Insurance Annuity (SPIA) with corporate discount that would pay your monthly pension for life.

As an individual, you are not going to be able to buy an SPIA that provides the same monthly income with the lump sum distribution even were it a non-taxable event. You can avoid taxes by transferring the lump sum distribution to a traditional IRA account.

Ignore the net present value of your pension. The question is can you earn more from the lump sum distribution in your traditional IRA account than the insurance company guarantees and will your RMD tax liabilities exceed that of the monthly income from your pension.

When I retired in 2013 at the age of 68, I took a lump sum for the portion of my pension that was eligible for lump sum distribution. The Pension Protection Act of 2006 resulted in the lump sum distribution being increased by 21%. I thought the infusion of another $500K into my traditional IRA would guarantee that my wife and I would have more than enough money to support us in our nineties. What I failed to recognize, due my long-time focus, was the impact that it would have on RMD that would start 2 years after I retired.

In retrospect the only advantage the lump sum distribution had for me is that it paid for the first five years of RMD withdrawals. They can be much more advantageous the more time that you have before RMD withdrawals need to start.
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