SERP Plan Distribution Options

Submitted by Jay P. on Tue, 2024-02-13 18:18

Client (age 50) is quitting his job in 2024 and taking 6 months off before looking for another job. His income is $250,000+ per year now and he expects to earn that level in his next job. However, his income in 2024 will be less b/c of taking 6 months off. He has $500,000 vested in his current employer’s SERP plan. After separating from service, he will likely take a lump sum from the SERP plan and not regular installments. What strategies exist to minimize taxes when the SERP plan is rolled out to him? Can he do a mega back door Roth? How would that work? He has no Traditional IRA’s, only a small Roth IRA.
Thank you.



Submitted by Alan - IRA critic on Tue, 2024-02-13 18:57

These are non qualified plans and not eligible for rollover to an IRA, so a total distribution could cause a large tax bill. 

Submitted by PaulC on Tue, 2024-02-13 22:33

As has been pointed out, the downside of a SERP is that it can’t be rolled over to an IRA or converted to Roth, but the upside is that the distributions aren’t subject to the 10% early distribution penalty. At age 50, that would present an issue for this client if they wanted to take money out of a qualified plan or IRA.

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