Add Excess Pension to IRA for tax savings?
I was told at a conference that those receiving a pension could deposit the amount of their choice into their IRA and defer taxes on the income. The case mentioned was a retired worker who was receiving $1700 per month that he was not using. He put the entire $1700 per month or over $20,000 in his IRA and paid no taxes. Is this possible?
Permalink Submitted by Alan Spross on Wed, 2008-01-23 03:57
Basically, no.
If he received a lump sum from the plan, he could roll it over to an IRA because it would be an eligible rollover distribution. Pension payments made over your life expectancy or over a period of 10 years or more, or paid as a series of substantially equal payments are NOT rollover eligible.
The hypothetical worker who did this has made excess contributions to his IRA that must be corrected including the earnings. And this must be done by the time limit to correct excess contributions or a 6% annual excise tax is incurred each year on the excess amount that remains in the IRA. If this has been going on for any period, it will be costly.