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Greetings, Tom, and welcome. You wrote:

<<I recently retired at the age of 54, from a municipal government job. In Jan.2001 I will receive a lump sum payment of 90K(Aside from my annual pension) from my pension plan.I plan to put that money into a Rollover IRA with Vanguard or Fidelity. I also have 35K in a Deferred Compensation plan which is a Vanguard Index fund.I begin work in Oct. with another agency which will allow me to put an addtional 8K a year into another Deferred Comp. program. My problem is that I am still a novice at investments. With my annual pension coupled with an annual salary from my new job I have a bad feeling that I'm going to take a huge tax hit! Any suggestions on how I can limit the damage would be appreciated.>>

The only potential income tax problem I see rests with your deferred compensation, or 457, plan. Unlike your pension plan, those funds cannot be transferred to an IRA. If distributed to you, they will be taxed (but not penalized) as ordinary income to you in the year of receipt. I see two ways to avoid adverse impacts in that regard.

First, see if your new employer's 457 plan will accept a rollover from another 457 plan. Sometimes in limited circumstances that is possible. If it is, just have the old custodian transfer the money to the new custodian to postpone taxation until you finally must take the money.

Second, you could see if the old plan will let you take that money over time instead of all at once. Avoiding a lump sum payment will help lessen the total taxes you will have to pay. Some plans will allow you to spread the distributions through an annual payment for up to 15 years.

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