Non Taxable Portion of Pension Lump Sum

Submitted by Heidi Davis on Tue, 2015-04-14 00:26

Hello Alan,
Thank you for your brainpower on helping on IRA questions. My client is retiring in 2 weeks and will be receiving his Defined Benefit Pension in a Lump Sum Payment. His report shows a $35k non taxable portion of the lump sum. 1. Can my client request that this amount be directly sent to a new Roth at Vanguard? (New rule change-1/2015?) Or is he required to still request the check separately and in 60 days remit to Vanguard?
2. This is his 1st Roth, so even though he is 67, he still must wait 5 years before taking out the new earnings part of the fund w/o penalty?
Thanks



Submitted by Alan - IRA critic on Tue, 2015-04-14 00:48

  1. Under Notice 2014-54 client is able to request the distribution in two parts with the pre tax amount directly rolled to a TIRA and the after amount to a Roth IRA. However, if the plan refuses to split the rollovers, then client should request that the after tax amount be paid to him in a separate check and do the 60 day rollover to the Roth IRA.
  2. There is no penalty because client is over 59.5. However, if he withdraws more than 35k before 2020, the excess of 35k will be taxable. His Roth will become fully qualified and tax free in 2020.

Submitted by Heidi Davis on Tue, 2015-04-14 00:57

Very helpful! Thanks!

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