Lifetime Income Annuity
Need Help with retirement income US tax issue. Is lump sum from pension taxable?
Ok, so I’m 55 and want to get early payment started on a pension being held by a former employer. I’m still working this year but will retire and have no monthly salary in all of 2010. I can get a lump sum from the pension, or start monthly annuity payments. I need the income right away so leaving to sit is not an option. If i get a lump sum and don’t shelter it in an IRA , is that distribution subject to Fed income tax? Likewise, are the monthly payments if i select a lifetime annuity taxable?
If you elect the lump sum, then the amount minus your basis is taxable.
If you elect the annuity, then your basis is divided by a number that depends on your age. That amount per month is not taxable for several years. When the total amount that was not taxed equals your basis, then the remaining payments are fully taxable.
In either case, the total untaxed amount equals your basis. In either case, the total taxed amount equals the difference between the total of the payments minus your basis.
income annuity, single premium annuity
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