Should Your Client Accept a Pension Buyout Offer?

Clients who are faced with current pension buyout offers may reach a different result in today's high-interest rate environment. Typically, the amount of a lump sum offer uses interest rate assumptions.When interest rates are low, the amount of the buyout offer tends to be higher. However, clients should also note that defined benefit payments are taxed when received. Lump sum payments can be rolled over into an IRA without current taxation, but will then be subject to the IRA required minimum distribution rules once the client reaches their required beginning date. As always, clients should consider their overall health, the sponsor's financial stability and their unique circumstances before taking a buyout. For example, clients who suspect they will be tempted to spend the money rather than save for retirement may be better off with the pension annuity payments. For more information on lump sum pension payments, visit Tax Facts Online. : Q 3971.