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Bill, Financial Advisor
Category: Finance
Satisfied Customers: 3081
Experience:  EA, CEBS - 34 years experience providing financial advice
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Im on long term disability. I have two blocks of money. One

Customer Question

I'm on long term disability. I have two blocks of money. One is a retirement fund and the other is my 401k. These are currently being managed by my former employer. I've heard that I can withdraw my pension fund without penalty except for taxes. I'm 52 years old single but my home is shared with my ex partner. We both reside in the home with his mother.

One option I was considering was to pay off my the home loan. Not having that monthly payment would be a great relief. But, it would also be a risk for my retirement fund.

Currently, my 401k is invested in the stock market. That makes me very nervous. Its only now that my 401k has gotten close to what it was pre-stock drop. But, putting that money in an IRA making basically no interest doesn't seem wise at all.

I definitely want the pension money away from my employer. The 401k I'm not sure about. Currently that money is in a age-driven fund. As I get older, the investment shifts to less risky options.

Sorry, I know that's a lot of questions. Thanks for your help.
Submitted: 3 years ago.
Category: Finance
Expert:  Bill replied 3 years ago.

If you take a lump sum from the pension plan then it will be subject to income taxes and the 10% penalty unless you are considered permanently and totally disabled. If you are receiving social security disability benefits then you would meet that definition. If the pension plan is paid to you over your lifetime in monthly payments instead of a lump sum then those payments would also be exempt from the 10% penalty tax.

If you take a lump sum to payoff your loan then depending on the amount it could push you into a higher tax bracket. Another option would be to have the lump sum directly rolled into an IRA. Then you could take periodic distributions from the IRA to make loan payments or to make additional payments. This strategy would spread the taxes over a number of years. If you meet the disability exception, then distributions from the IRA would also be exempt from the penalty tax.

You could also request that the 401(k) be rolled over to an IRA. With an IRA you can invest in a variety of investment vehicles similar to the 401(k) investments, including age-driven mutual funds.

Customer: replied 3 years ago.
Thanks for your answer. I have one last question if you don't mind. What's my next step. Do I find a financel advisor, tax consultant H&R block, and how do I find one?
Expert:  Bill replied 3 years ago.

Yes, you should engage the services of a financial advisor. There are many firms that can assist you including Merrill Lynch. You may want to meet with at least 3 advisors at different firms to determine which one is most suitable to you. Some firms have additional fees that apply if your accounts do not exceed certain amounts, so that is an important question.

For the tax filing you would engage the services of a tax preparation firm.

Bill, Financial Advisor
Category: Finance
Satisfied Customers: 3081
Experience: EA, CEBS - 34 years experience providing financial advice
Bill and other Finance Specialists are ready to help you
Customer: replied 3 years ago.
I have a follow up question. My total retirement fund is very low, $150.00 in retirement and 401k. $300,000 will not be anywhere near enough to supplement my income. I am on long term disability and on disability and medicare.

I don't have many options that I can see. If I continue to leave the money in a mutual fund I risk losing it all. If I put it in an IRA I won't earn enough interest to keep me going when I retire (I'm 53, I have LTD insurance but I believe those payments stop once I hit retirement age)

So realistically I see two choices. Leave my money in the stockmarket and pray.
Take out $50,000 every year to pay off my home loan. If I take this option, where should I withdraw from, pension or 401k?

Thanks. I know I'm reopening this question and so this is a new session. I expect that I'll be asked to make a new payment. If not, we can deal with that later. I just didn't want to open a whole new ticket that wouldn't have the history.

Thanks
Kay
Expert:  Bill replied 3 years ago.

If you withdraw $50,000 a year then that will push you into a higher tax bracket and you may have to pay a tax rate of 25% on some of the distribution. You might want to withdraw a lessor amount and merely make additional principal payments which will reduce the number of years that you will have to pay.

If you invest in a self-directed IRA then you can purchase stocks, bonds, mutual funds and other types of investments. You are not restricted to bank CDs.

Bill, Financial Advisor
Category: Finance
Satisfied Customers: 3081
Experience: EA, CEBS - 34 years experience providing financial advice
Bill and other Finance Specialists are ready to help you

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