Pension Rollover

What Is a Pension Rollover?

A pension rollover transfers funds from a traditional defined benefit pension plan to an Individual Retirement Account (IRA) or another qualified retirement plan. This option typically becomes available when you leave an employer, retire, or when your company terminates the pension plan.

When Pension Rollovers Make Sense

Consider a rollover when:

• Your pension plan is frozen or terminated: Many companies offer lump-sum buyouts to reduce long-term liabilities.
• You want investment control: IRAs offer thousands of investment options versus the fixed monthly payment of a pension.
• Estate planning is important: IRA balances can pass to heirs; pension payments typically end at death (or spouse’s death).
• You have health concerns: If you don’t expect to live to average life expectancy, a lump sum may provide more total value.

When to Keep the Pension

Monthly pension payments may be better when:

• You expect to live longer than average—the pension provides longevity insurance.
• You don’t want to manage investments or worry about market volatility.
• The pension includes valuable benefits like healthcare subsidies.
• Your pension is backed by a strong company or government entity.

How to Execute a Pension Rollover

1. Request a distribution packet from your pension administrator.
2. Open a rollover IRA if you don’t already have one. Choose a custodian with low fees.
3. Request a direct rollover—the check should be made payable to your IRA custodian, not to you personally.
4. Complete paperwork from both the pension plan and IRA custodian.
5. Confirm receipt and invest the funds according to your retirement plan.

Tax Considerations

Direct rollovers to traditional IRAs are not taxable events. The funds remain tax-deferred until withdrawal. If you receive the funds personally (indirect rollover), you have 60 days to deposit them into an IRA, and 20% mandatory withholding applies to the distribution. Failing to complete the rollover within 60 days triggers income tax and possible early withdrawal penalties.