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Surprise Pension Money

April 14, 2008

A packet came from my former company asking me what I wanted to do with my pension money that they were cashing out to me. I was not expecting this! I thought that the pension took five years to vest, and my vesting service was just 2.5 years. It is a fairly small sum of money: about $1000. Still, this is great: money I didn’t know I was getting to be added to my retirement accounts!

I briefly considered cashing it out and adding it to my emergency fund. In addition to the 20% federal taxes that would be owed, there is another 10% penalty for withdrawing it early. I assume I’d have to pay state taxes as well. In this case, that 10% penalty really isn’t much, $100. However, I decided to be responsible and put it into an appropriate retirement account.

This leads me to recall my grand plan to move my old 401k and perhaps my Roth IRA over to Vanguard. I talked about this in February, yet there they sit over at my former institution. It is possible my new 401k would accept this pension money, but it seems best to get on with it and open a rollover IRA. I need to get on the phone and figure out exactly what paperwork I need to fill out to make all this happen. It isn’t as straightforward as I had hoped, but I should be able to figure it out by the end of the week. That is my goal for this week: Initiate a rollover from my old 401k to a Vanguard IRA, and direct pension cash value to new IRA as well.

I still am considering converting at least a portion of the 401k to a Roth IRA for better tax diversification. I’m not sure how many years I will be able to contribute to the Roth, especially if I get married in the next few years, so it might make some sense to get that money in there now. I probably could wait until I do my taxes for 2008 to see how this might affect my tax bill.

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2 Comments leave one →
  1. April 14, 2008 10:56 am

    sweet, “free” money. 🙂

    I just transferred my Roth IRA to Vanguard from Fidelity. They have some great programs.

  2. April 14, 2008 1:06 pm

    Hot Dogs! That is great Monday news. I have only heard great things from Fidelity, so i hope your weeks’ goal works out for you! I’d LOVE to xfer all my retirement money there, but can’t yet until i change companies….and i enjoy it here too much to do so at the moment 🙂

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