Is there a way to defer taxes on a lump sum pension withdrawal in 2025?

Does it matter what kind of IRA you roll it into? I've heard there are traditional and Roth options, but I'm not sure which would be better for a pension rollover.

Thank you so much for explaining this! My advisor mentioned rollovers but wasn't clear about the "direct" part. So if I understand correctly, I need to set up an IRA first and then have my pension administrator transfer funds directly to that account? Is there paperwork I need to fill out for this?

For a pension rollover, you'll want to use a Traditional IRA, not a Roth. A Roth conversion would require paying taxes on the full amount now, which defeats the purpose of tax deferral. Yes, you'll need to set up the Traditional IRA first at your chosen financial institution. Then you'll need to fill out distribution paperwork from your pension plan administrator where you'll indicate this is a direct rollover to an IRA. You'll provide the new IRA account information on that form. The financial institution where you set up the IRA can help guide you through this process - they do this all the time and want your business.

How long did it take to get the analysis back? My pension decision deadline is coming up pretty fast and I'm worried about timing.

Did they explain the difference between direct and indirect rollovers? My HR department keeps using these terms interchangeably but I think there's a big difference tax-wise.

I got my analysis back in less than 24 hours, so it's pretty quick if you're on a tight deadline. They absolutely clarified the direct vs indirect rollover difference - it's huge! With a direct rollover, the money goes straight from your pension to the IRA without you touching it, which avoids mandatory withholding. With an indirect rollover, they give you the money minus 20% mandatory withholding, and you have only 60 days to deposit the FULL amount (including the withheld portion that you need to make up out of pocket) into an IRA. If you miss the deadline or can't cover the withheld amount, you'll face taxes and possibly penalties.

How does this actually work? Does the IRS know about this service? Seems too good to be true considering how impossible it is to reach them normally.

Sorry, but this sounds like a scam. There's no way to "skip the line" with the IRS. They're notoriously understaffed and everyone has to wait. I'm extremely skeptical that this does anything special.

The IRS absolutely knows about the service - it's completely legitimate. Claimyr doesn't "skip the line" - they just wait in it for you. They use automated technology to hold your place in the queue and then call you right before an agent picks up. It's basically like having someone else sit on hold for you. It's definitely not a scam. They don't ask for any personal information beyond your phone number (which they need to call you back). The call connects directly to the IRS, and you speak directly with an official IRS representative. I was skeptical too until I tried it and got through to resolve my question about partial rollovers that my accountant couldn't answer definitively.

What kind of fees did you pay for the annuity? I've heard they can be pretty expensive compared to just managing an IRA yourself.

The fees depend on the type of annuity you choose. I went with a fixed indexed annuity that has no direct annual fees, but there's about a 1% spread on the interest earned. It's more expensive than managing a simple index fund in an IRA, but the guaranteed income floor was worth it for my peace of mind. You need to be careful with variable annuities though - those often have much higher fees (2-3% annually) plus surrender charges if you need to access the money early. The key is understanding exactly what you're paying for and making sure it aligns with your goals.

I took a partial distribution without rollover to pay off debt. You might consider that instead of the all-or-nothing approach. I took about 25% in cash (which was enough to pay off my highest interest debts) and rolled over the rest. That way I only paid the tax hit on a portion while preserving most of the tax deferral.

This is really helpful perspective, thank you! I hadn't heard about the "Rule of 55" before - that's interesting about it only applying to company 401(k)s and not IRA rollovers. Given my company's shaky financial situation, I think you're absolutely right that the IRA rollover is the safer bet despite losing that potential workaround. The bankruptcy angle is exactly what I'm worried about. Did you have any issues with Vanguard during the rollover process, or was it pretty straightforward? I'm thinking about setting up accounts with both Vanguard and Fidelity to compare their guidance before making the final decision. Also, can you explain a bit more about what you mean by "Roth conversion ladder"? Is that something I could do gradually to spread out the tax impact over several years?

@GalaxyGuardian The Roth conversion ladder is a great strategy for early retirees! Basically, you convert a portion of your Traditional IRA to a Roth IRA each year, paying taxes on just that converted amount. The key is converting just enough each year to stay in a lower tax bracket, rather than doing one massive conversion. For example, if you're in the 12% tax bracket, you might convert $25,000-30,000 per year from Traditional to Roth. You pay taxes on that amount at your current rate, but then it grows tax-free in the Roth. After 5 years, you can withdraw those converted amounts penalty-free (even before 59½) since you already paid taxes on them. This works especially well if you have some years between retirement and when you start drawing Social Security, where your income might be lower and you're in a more favorable tax bracket. Just make sure you have other funds to live on during those conversion years, since you'll be paying taxes on the conversions. The beauty is you can control the timing and amounts to optimize your tax situation year by year, rather than taking one huge tax hit all at once.

@Jacob Smithson This is exactly the kind of real-world experience I was hoping to hear about! Thank you for mentioning the paperwork mix-up - that s'the kind of mistake that could be really costly. I definitely don t'want to end up with an indirect rollover by accident and have to deal with that 20% withholding situation. Your point about not rushing the decision really resonates with me. My HR department has been pushing me to make a choice quickly, but you re'right that it s'worth taking the time to get everything set up properly first. I d'rather spend a few extra weeks making sure I have all the right paperwork and processes in place than rush into a mistake that costs me thousands. Did Schwab provide you with a checklist or guide for the rollover process? I m'planning to contact both Schwab and Vanguard this week to see what kind of support they offer for pension rollovers. The more documentation and guidance I can get upfront, the better I ll'feel about the whole process. It s'also reassuring to hear that your former company had funding issues later - definitely validates the decision to get the money out while you could!

@Jibriel Kohn Thanks for bringing up the 72 t(substantially) equal periodic payments option! That s'something I hadn t'considered before, and it sounds like it could be a really useful strategy for bridging the gap between early retirement and 59½. Do you know how the payment amounts are calculated under that rule? I m'wondering if there s'flexibility in choosing how much you receive each year, or if it s'a fixed calculation based on the account balance and your age. The requirement to continue payments for at least 5 years is good to know - that s'definitely something to factor into the planning. It s'also helpful to hear you re'getting quotes from multiple institutions. I ve'been leaning toward Vanguard based on some of the recommendations here, but you re'right that comparing the investment options and fee structures across all the major players makes sense. Have you found any significant differences in their rollover processes or support so far, or are they pretty similar in their approach? This whole thread has been incredibly educational - so much more detailed and practical than the generic advice you usually find online. Really appreciate everyone sharing their real experiences!

@Jibriel Kohn The 72 t(calculations) are pretty rigid - there are three IRS-approved methods Required (Minimum Distribution, Fixed Amortization, and Fixed Annuitization and) you have to stick with whichever one you choose for the entire 5-year period or until 59½. The payment amounts are based on your account balance, age, and IRS life expectancy tables, so there s'not much flexibility to adjust them once you start. I ve'been researching this extensively since I m'in almost the exact same boat as the original poster. From what I understand, the Fixed Amortization method typically gives you the highest annual payments, but it s'also the most restrictive. You literally cannot modify the payment amount without triggering penalties on all the distributions you ve'already taken. One thing to be careful about - if you mess up the 72 t(payments) even once take (too much, too little, or skip a payment ,)the IRS considers it a modification "and" you owe the 10% penalty retroactively on ALL the distributions you ve'taken under the program. So it s'not something to enter into lightly without really solid planning and record-keeping.

@Mateo Gonzalez That s'a really important point about checking if your pension plan actually allows direct rollovers! I hadn t'even thought to verify that - I was just assuming it would be an option. The PBGC protection limits are another crucial consideration, especially given @CosmosCaptain s'concerns about company stability. Your experience saving $60,000 in immediate taxes really puts this in perspective. That s'a massive difference that would be hard to make up even with good investment returns over time. I m'curious - when you called your plan administrator, did they try to talk you out of the rollover or were they pretty straightforward about the process? The timing aspect is something that s'been weighing on me too. There s'definitely a balance between taking enough time to make an informed decision and not waiting so long that external factors like (company financial troubles complicate) things. Better to have the money safely in your control sooner rather than later, especially in uncertain times. Thanks for sharing your real numbers - it really helps to see the actual dollar impact rather than just theoretical tax scenarios!

@Luca Ricci Thank you for sharing such detailed firsthand experience! Your timeline of 18 days is really helpful to know - I was wondering how long the actual transfer process takes. It sounds like there s'definitely some coordination required between the pension administrator and IRA custodian. Your point about the company s'subsequent financial troubles really validates the concerns that @CosmosCaptain mentioned. It s'one thing to worry about company stability in theory, but hearing about actual stock drops and layoffs after someone made their decision really drives home how important it is to get the money out while you can. I m'particularly interested in your mention of getting written confirmation from both sides about the process. Did you run into any miscommunications or conflicting information between your pension administrator and Fidelity during the rollover? I m'trying to anticipate potential hiccups so I can address them proactively. The RMD rules at 73 are definitely something I need to research more. I assume that just means you have to start taking minimum distributions at that point, but the money continues to grow tax-deferred until then?

@Luca Ricci @Emma Johnson I went through a similar rollover process with Vanguard last year, and I can confirm that getting written confirmation from both sides is absolutely critical. In my case, there was actually a miscommunication where my pension administrator initially prepared the paperwork for a 60-day indirect rollover instead of a direct trustee-to-trustee transfer. If I hadn t caught'that error, I would have faced the 20% mandatory withholding. The key is making sure both parties are using the exact same language - direct rollover "vs trustee-to-trustee" transfer "vs indirect" rollover "- because" they all have different tax implications. I literally had both my pension administrator and Vanguard on a three-way call to confirm the process step-by-step before we initiated anything. Regarding the RMD rules Emma asked about - yes, you re correct'that you must start taking required minimum distributions at age 73, but the calculation is based on your account balance and IRS life expectancy tables. The good news is that you only have to withdraw the minimum amount each year - the rest continues growing tax-deferred. Many people actually find that the RMD amounts are manageable and fit well into their retirement income planning. The peace of mind factor that Luca mentioned really can t be'overstated. Having control over your own retirement funds versus trusting a potentially unstable company is worth so much more than any minor tax optimization you might miss.