|
Tweaking Your Portfolio
Dear Jeff:
My husband retired a year ago. At the time he had money in a deferred compensation plan. We elected to leave money in the plan for five years. When the five years are up, how should we invest this money? Would we be wise to get the money in a lump sum and pay the taxes on it then, or should we just go ahead and get the money sent in monthly payments? Any advice would be appreciated. Thank you.
Jeff Says:
Deferred compensation is a great benefit that employers can provide to selected employees in addition to traditional retirement plans. They come in so many forms, however, and each provides the recipient with different options that it make it very hard for me to be specific in answering your question. Not knowing your income tax situation only makes my job more difficult. Nevertheless, I would recommend that you strongly consider taking the money in a lump sum so that you have control of the proceeds. You will probably be able to invest the lump sum distribution and achieve a better return than you would receive if you left the money in the plan. Having said that, you should review the details of your plan to make sure that this would be so.
You should also verify what options you will have at the end of the five-year period. Will you be able to take the plan's assets in a lump sum? Or, will you have to take the assets in regular installments? Are you able to transfer all of the assets of the plan without incurring income taxes? Deferred compensation plans can be a little tricky when it comes to income taxes. Proceeds under many types of deferred compensation plans usually become taxable when the assets can be withdrawn by the participant. There are exceptions to this potential income tax dilemma and I strongly recommend that you work with a financial advisor with whom you can explore your options.
Share your question with other ThirdAgers, post your message in the Discussions.
Missed a week? Peruse past editions.
More about Jeff Fleming
Please read our disclaimer.
|
