The Help Desk

Your tough questions. MONEY's smart answers.
Presented by

Should I cash out my pension?

November 6, 2012: 6:30 AM ET

My company is offering a lump sum payout of my pension. The payout is $261,000 and can be rolled over to a traditional or Roth IRA. Will I have to pay taxes on a Roth rollover? If I don't take the payout, one option is to receive $1,577 monthly in a single-life annuity starting at age 60. I will turn 60 in December and my wife is one year younger. We will continue working until at least age 62. My wife and I currently have $700,000 in retirement savings (mostly traditional IRAs) and plan on working at least another two years. We are debt free except for our home mortgage of $215,000. Should I take the payout or stay with the monthly payment? — Carl

The advantage of taking a lump-sum payout is that you retain full control over those assets. And unlike an annuity, you can pass any leftover money to your heirs when you die. But taking the pension in a lump sum also means that you'll be responsible for managing those assets. "You have to ask yourself whether you want the responsibility and risk of handling this money, or whether you want the certainty that comes with a guaranteed monthly pension," says Lyle Benson, a CPA and president of Baltimore-based tax and financial planning firm L.K. Benson & Co.

One other factor to consider is your life expectancy. If you're in a great health and feel confident that you'll outlast the life expectancy used by your pension administrator to calculate your pension, then the annuity might be a better option. However, single-life annuities come with a drawback: that money ceases to be paid out when you die. For that reason, Benson recommends trying to switch to a joint-and-survivor annuity if you opt not to cash out. Although your monthly payment would be smaller, those payments would continue to your spouse if you die before her.

Benson also notes that rolling over a lump-sum pension payout to a Roth IRA would trigger taxes on the full amount. Because your tax bracket is probably higher now than it will be when you're retired, you're likely to be better off deferring that tax bill for now and rolling your pension assets into a traditional IRA.

— Marc Mewshaw

Got a question for the Help Desk? Send it to

Posted in: Investing, Retirement, Taxes
Join the Conversation
Help Desk

Got a question about your money? We want to hear it! Each week we're answering your questions on CNN, Headline News and

Your email or phone number won't be published; we'll use it to get in touch if we need more information about your question.
Help Desk Video
  • NEXT
    Not enough money in America's 401(k)s
    Despite the surging stock market bringing balances to record highs, the average Fidelity 401(k) account has less than $100,000 in it. That's just not enough. Play
  • NEXT
    Explaining Obama's myRA
    President Obama unveiled a new savings plan for retirement accounts, aimed at encouraging people to start building their nest egg. But how exactly does it work? Play
  • NEXT
    Tricks on how to save in your 20s
    Saving for your retirement in your 20s doesn't have to be a financial burden. Prioritizing your expenses is usually the first step in building a nest egg. Play
  • BACK
    Don't get fooled by Black Friday sales
    Here are some of the tricks that retailers use to make you think you're getting a deal. Keep an eye out for them while shopping this Black Friday. Play
Best Tips
Some of the nation's leading business owners, investors, and thinkers share their thoughts on rebuilding your wealth. More
These strategies can help you manage the challenges -- both emotional and financial -- of helping an aging parent from afar. More
You don't need to be fanatical to get to 780. Those in the know say these moves matter most. More
Featured Newsletters

Tips for saving and spending smarter.

Search This Column
View all entries from this: Week, Month
Help Desk
More help for your career, your investments and your budget.
Powered by VIP.