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Module 9b

Retirement and Estate Planning > Planning for a Secure Retirement > Module 9b

Module 9b: What to Do with a Lump Sum Distribution

What should you do with a lump sum distribution?

  1. Take the money and pay the taxes.
  2. Take the lump sum and use tax averaging.
  3. Deposit the money into an Individual Retirement Account (IRA), other qualified retirement plan, or a new employer's plan. This is called a "rollover".
  4. Leave the money in your current employer's plan.

Early Termination

A participant who terminates employment before normal retirement age can have up to three options: receive a lump sum distribution, roll the assets over to an IRA or other qualified plan, or leave the funds in the pension plan.

If the participant's vested account balance is less than $5,000, the law allows, but does not require the plan to disperse the balance to the participant if the participant does not make a timely election. This is called a forced payout.

If the amount is between $1,000 and $5,000, the payout can be directly rolled to an IRA if the participant has not made a timely election and the plan requires a forced payout. A forced payout for an amount less than $1,000 is not affected by this change.


Lump Sum Distributions
(Source: IRS)

How to Handle a Lump Sum Distribution
(Source: Smart Money)

Module 9 - Module 9a | Module 9b | Module 9c | Module 9d