2. Take Annuity Payments That Are Best for You

Some pension plans will only let you get monthly annuity payments. Here are some strategies that will make the most out of your monthly payments:

• If you want to maximize your payouts, tell your plan administrator that you want your monthly payouts calculated using the "recalculation" method. Under the recalculation method, your monthly payouts are determined by your life expectancy (or the joint life expectancy of you and your spouse) as set forth by IRS tables. Once you or your spouse die, the payout is recalculated, using the single life expectancy, which is a shorter time period.
  
  As a result, your remaining payouts will be larger. However, once you and your spouse both die, all of the remaining money is distributed in a lump sum—and is immediately taxable to your estate!
  
  Straight Talk Tip: When you get ready to receive distributions from your pension plan, call 800/829-1040 or go to www.irs.gov and get a copy of IRS publication #590, the tables that outline the IRS' life expectancy minimum distribution requirements.
  
  
• If you want to minimize your estate taxes (and don't mind smaller monthly payments), have your monthly payments calculated using the "term-certain" method. Like the recalculation method, the term-certain method locks in the life expectancy for both you and your spouse—or just yourself if you're single. But, with the term-certain method, there is no "recalculation" of life expectancy once you or your spouse dies.
  
  Your payout continues at the same monthly pace and is paid to your estate once you and your spouse both die. The remaining money in your account is taxable to your estate only when it's paid—over the remaining years of the preset payout period!
  
  For example, say you have $210,000 in your pension and your joint life expectancy is 21 years. You and your spouse get a total of $10,000 per year from your pension. If you and your spouse die after 17 years, there will still be $40,000 in your retirement account. Under the recalculation method, that $40,000 lump sum would be taxed. But, under the term-certain method, only $10,000 per year is taxable. Your tax savings: $2,318.
  

Page « Previous 1 2 3 4 Next »