Secondary Problem

Too many pension participants will overlook or not read the paperwork that all employers must provide 30 days before the distribution.( amounts between $1,000 and $5,000 can go directly into an IRA Rollover). As a result, some pension participants will foolishly elect a distribution and trigger an unnecessary taxable event.

Solution

You being informed is the solution. Participants planning to defer current taxation of the proceeds should be introduced to the best way to avoid this unnecessary, inconvenient event of 20% withholding.

What is the best way? The participant simply instructs the employer to transfer the proceeds to an IRA or to another qualified plan. Simply put, an IRA transfer avoids the employer’s 20% withholding.

Are there other ways to avoid the 20% withholding distribution? Yes, electing substantially equal payments over the participant’s life expectancy, the life expectancy of the participant and his/her beneficiary or substantially equal payments over 20 years or more are 3 ways to avoid withholding.

Should clients rely on the information of these pages or on your counsel to make a decision regarding distributions, taxes, etc? No! Clients should consult with their own legal and tax advisors. It is our job, however, to guide them to the right annuity and insurance company.