Collecting From The State
Dave thinks a direct transfer rollover to an IRA is just what Priscilla needs to collect on her dad's old pension plan.
QUESTION: Priscilla’s dad died a couple of years ago. Through his state retirement plan, he left her $20,000. When she called about it, she was told she could get a $15,000 lump sum after taxes, or installment payments of $572 a month for the rest of her life. Dave tells Priscilla how to take care of this.
ANSWER: Don’t take payments. Those payments would be for the rest of your father’s life, if he were receiving it. Otherwise, you could leave it to your grandkids, and they would leave it to their kids, and it would just go on forever. The agent who told you that was mistaken.
You don’t have to have any of it held for taxes, by the way. What I would do is go to a mutual fund broker and open an IRA and you can roll this to an IRA as an inherited pension plan. Then there won’t be any withholding. That will be sent to the state and they can do a direct transfer rollover into the IRA, and then you’ll get the whole $20,000 in there without any withholdings. That will save you an extra $5,000.
If that doesn’t work, then just take the lump sum and do something with the money.