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Lev
Lev, Tax Advisor
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hi relative left me 403b with death benifit of 93,000, i just

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hi relative left me 403b with death benifit of 93,000, i just retired at age 49 was going to put the 93,000 in immediate annuity for 15 years which pays 638 per month (metlife figures)then i will have other assets i would begin to receive.(at end of 15 years) question is that since im under 59 will that monthly payment of 638 be both federally taxable and also be subjected to federal 10% penalty tax since im under 60? also if i take lump sum payment of the 403b = 77,000after taxes i could put that amount into bank take out 431 for 15 years and probably have almost same income as the taxed 638.00 without giving up control of moniey to metlife like i would with the 15 year fixed immediate annuity?
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!
If you take lump sum distribution from an inherited 403b account - the full amount of distribution will be added to your taxable income. Because that is an inherited retirement account - there will not be 10% penalty regardless of your age.
You may defer tax liability by spreading distributions over several years by transferring funds into special "inherited IRA." Generally you have a choice - either take substantially equal distributions over the lifetime or take the full distribution within five years.
If you take the distribution (which will be taxable for you) - you may use the money as you wish. In particular - you may purchase the annuity. When you will receive payments from the annuity - these payments will be partly taxable. You will not pay tax on the part of the payment that represents a return of the after-tax amount you paid. This amount is your cost in the plan or investment.
The taxable part of your pension or annuity payments is generally subject to federal income tax withholding.
Let me know if you need any help.

Customer:

not asking for financial advice but it appears i would be better off taking lump sum reinvesting in a product that pays better return = 93,000 over 15 years at 638 = 114,900= 21,900 profit taxable= do you know how to figure the exact return on above figures? = 2%, 3%= the individual i'm dealing with on this 403b seems hesistant to provide exact rate of return thank you

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22617
Experience: Taxes, Immigration, Labor Relations
Lev and 3 other Tax Specialists are ready to help you
Expert:  Lev replied 3 years ago.
From tax prospective taking a lump sum distribution is generally not a good idea...
Because additional taxable income - you might be pushed into higher tax bracket.
In additional - because your adjusted gross income (AGI) will be higher - you may be not eligible for other deductions and credits that you normally use.
From investment prospective - if your expected income would overcome additional tax burden - you may still choose a lump sum distribution.
Immediate annuity 93,000 over 15 years at 638 - represents ~2.75% return.
I think you may have at least the same level of earnings inside 403b account without taking a lump sum distribution.
Let me know if you need any help.

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