Lifetime Planner IDEA: Add a Pension Lump-Sum Distribution Option
CHANGE SUMMARY:
Lifetime Planner IDEA: Add a Pension Lump-Sum Distribution Option
Scooterlam
SuperUser, Windows Beta Beta
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THE ISSUE and BENEFIT:
Currently, LTP allows a user to define a future pension annuity only. If the user has the option to take a one-time, lump-sum distribution rather than an annuity, they are not currently able to correctly model this lump-sum scenario in LTP. Reference this discussion.
Having this feature allows the user to determine, based upon their own particular situation (their personal financial model in LTP), the best option to take (annuity or lump-sum) by leveraging the "Explore What-if" feature to assess plan balances, et al., of the two options.
THE CHANGE:
1. Add an option to allow the user to model a one-time, lump-sum distribution of their pension plan.
2. Ensure that any lump-sum distribution can be deposited into a user-selected, tax-deferred account (IRA) so that future taxes on withdrawals, penalties, RMDs, et al are properly handled. Assume that 100% of the eligible lump-sum distribution is made to this user selected account.
3. If the user does not have a tax-deferred account setup or included in LTP, then GUIDE the user to do so, either at the time the account is to be selected in the Edit Pension dialog or through clear messaging to create this account through normal "create account" workflow.
4. Allow an option for the user to deposit the lump-sum distribution into a taxable account - a taxable distribution. If the user takes this option, ensure that any taxes and penalties on the pension distribution are assessed in the year of distribution and consistent with current tax laws. Assume that 100% of the eligible lump-sum distribution is made to this user selected account. There is a work around for this approach using "other income" but it is better if integrated into the Retirement Benefits>Edit pension dialog.
5. Ensure that the "Explore What-if" scenario tool works correctly, allowing the user to assess plan balances given the two pension distribution strategies.
6. Consider a use-case where pension contributions consist of pre and post tax contributions where a lump-sum distribution could be distributed to both ROTH IRA and traditional IRA account types. This may first require additional scope expansion of existing pension plan input dialog and model and better transparency of ROTH IRAs in LTP.
2. Ensure that any lump-sum distribution can be deposited into a user-selected, tax-deferred account (IRA) so that future taxes on withdrawals, penalties, RMDs, et al are properly handled. Assume that 100% of the eligible lump-sum distribution is made to this user selected account.
3. If the user does not have a tax-deferred account setup or included in LTP, then GUIDE the user to do so, either at the time the account is to be selected in the Edit Pension dialog or through clear messaging to create this account through normal "create account" workflow.
4. Allow an option for the user to deposit the lump-sum distribution into a taxable account - a taxable distribution. If the user takes this option, ensure that any taxes and penalties on the pension distribution are assessed in the year of distribution and consistent with current tax laws. Assume that 100% of the eligible lump-sum distribution is made to this user selected account. There is a work around for this approach using "other income" but it is better if integrated into the Retirement Benefits>Edit pension dialog.
5. Ensure that the "Explore What-if" scenario tool works correctly, allowing the user to assess plan balances given the two pension distribution strategies.
6. Consider a use-case where pension contributions consist of pre and post tax contributions where a lump-sum distribution could be distributed to both ROTH IRA and traditional IRA account types. This may first require additional scope expansion of existing pension plan input dialog and model and better transparency of ROTH IRAs in LTP.
7. Document and maintain feature description, assumptions and "how it works" in HELP. Consider additional guidance to users who have setup and are currently tracking their pension via asset accounts.
8. Communicate this change in LTP through release notes.
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Comments
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This is a very nice summary and I hope this can be added to the life time planner!0
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Agreed, can't believe this feature is lacking in LTP. I found this post because I am having to make this exact lump sum or annuitize decision right now, and to find no way to model this is disappointing.0