Pension rolled to a CD

Pension rolled to a CD
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#1

I am 67 will I be taxed if I roll my pension into a CD.


#2

Hi @tashar7872 and welcome to the NerdWallet community! The question of whether pension benefits are taxed can get tricky and I’m no expert on all the various ins and outs of the law. But speaking generally, in many cases you can defer paying tax when you do a direct rollover of a pension lump sum into an IRA.

There’s more on that on these two IRS pages:

https://www.irs.gov/taxtopics/tc410

https://www.irs.gov/taxtopics/tc412

To roll your pension lump sum into a CD, you’d generally have to open your IRA at a bank (to get access to a bank CD). Here are some of the best bank CDs, based on our research: https://www.nerdwallet.com/blog/banking/nerdwallets-best-cd-rates/

Hope that helps!


#3

Hi, @tashar7872! As @acoombes mentioned, the money will be taxed unless you roll the whole lump sum into an IRA first. Then you can invest in whatever you want, including a CD, and not have to worry about taxes until you turn 70-1/2 and need to start making required minimum distributions.

If you decide to go this route, you don’t want the pension administrator to send you the check directly. You want them to send the money directly to the brokerage or bank that has your IRA. That’s what @acoombes meant by “direct rollover.” Otherwise, the pension company will withhold 20% of the money and you’d have to come up with that much out of your own pocket in order to avoid that 20% getting treated as a distribution and taxed.

Is there a reason you’re doing a lump sum rather than opting for an annuity/monthly checks? If you have the option, there are lots of advantages to an annuity.

Let us know if you have any other questions…there are a lot of decisions to be made around retirement that can be tricky, and we’re happy to help where we can.