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Do I have to be employed to roll over part of my lump sum distribution to a traditional IRA?

I own a small annuity from a former employer. I'm currently being offered a lump sum totaling $26,000. My spouse and I are going to cash out half of the annuity because we owe back taxes and want to pay it off. The problem is I'm still not employed, so I don't know where to put the other half. My spouse works and has his own generous retirement plan from his employer. I do get a small income that's tax exempt from foster care, but I plan to start working again in the near future. We were thinking a traditional IRA for now, but is that even allowed?

Financial Planning, Annuities
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November 2016

The short answer to your question is: Yes, you can roll over a qualified plan from your employer into a traditional IRA. 

The other question is, should you? Depending on the type of annuity, it could be a great way to get free from IRS debt- or a terrible retirement strategy if it is a generous pension.

 If the $26,000 being offered, what is in the plan, or does it include an additional "bonus" from the employer attempting to buyout your right to a lifelong income at retirement?  

Though not always sure-fire, if it is the latter, you really should spend some time crunching the numbers or employ a financial professional to do so for you, prior to taking the money out. Said differently, if it is such a good deal for you as a former employee- why is the company offering it? Generally, companies have moved away from pensions because it is a very long term liability that they will be paying for the rest of the employee's life. That makes their balance sheet look terrible to investors or acquiring companies. On the employee end, it is not uncommon to see someone who would receive $500-$800 a month for life after 55- 60 years of age. Then the question becomes, would you rather have $26,000 all at once, or $6000+ a year for life in retirement, guaranteed until you die? Those are pretty compelling numbers. 

Again, those are the general questions you should consider asking before rolling the money over, but for advice specific to your situation, you should consult a qualified financial professional.

November 2016
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November 2016