Can I Get a Lump Sum Payment of My Pension at 52 Years Old?

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Pension payments are made when you retire from your job. You must use care when taking them before a certain age because they may incur a penalty along with the distribution. While there are ways around the penalty, a lump sum distribution is not allowed at age 52 under current rules for all pension plans.

Significance

A pension plan distribution may be taken as a lump sum. This lump sum amount represents the total of all future pension payments minus the interest that would normally be paid on those payments. The lump sum amount requires that your spouse sign a waiver form that waives all future rights to receive beneficiary payments when you die.

Disadvantage

Taking your pension early will require that you pay a 10 percent penalty on the distribution. You may also have to pay ordinary income tax on all money you take. You may roll your pension into another retirement plan, but you may not escape the 10 percent penalty, depending on the type of pension it is.

Solution

You should wait until your pension allows a normal distribution. This will prevent you from paying a 10 percent penalty on the amount you take as a lump sum distribution. You may have to wait for several years. However, a 457 deferred compensation plan allows you to take payments as early as 56 without incurring a penalty. A deferred compensation (457) plan allows you to set aside a portion of your income with your employer. Your employer invests this money for you and returns it to you as a pension-style payment when you retire.

Consideration

If you are committed to retiring early, you may take monthly payments under IRS rule 72t. This exception to the normal distribution rules for pensions allows you to take penalty-free withdrawals. The withdrawals must be equal payments stretching over at least five years or until you are age 59 1/2, whichever comes later. The payments must also be based on your life expectancy at the time you start taking payments. While this is not a lump sum distribution, it does get some of your retirement money in your hands at age 52.

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References

  • "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
  • IRS: Publication 575
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