Lump sum distribution

What is a lump sum distribution?

The definition of a lump sum distribution can vary by company, and from person-to-person. This article, for simplicity’s sake, is written under the assumption that you are receiving (or will soon receive) a lump sum distribution of your 401k or other retirement accounts as defined under current tax law. This means that you will either receive a single payment or several payments over the course of one year, either of which may include stock from an employer stock distribution plan.

If you are en route to retirement or you are changing jobs, there are important decisions you need to make ... sooner than you may think. How will you preserve the retirement funds you have accumulated over an entire career to provide the income stream you will need for your future? There are several options to consider that can help you protect the security you’ve earned from unnecessary or untimely income tax treatment.

Is there any special tax treatment on a lump-sum distribution.?

A lump-sum distribution is the distribution or payment, within a single tax year, of an employee's entire balance from all of the employer's qualified pension, profit-sharing, or stock bonus plans. The distribution must have been made under specific conditions. For details, refer to Tax Topic 412 which discussesLump-Sum Distributions or Publication 575, Pension and Annuity Income.

Is it better to take an annuity or a lump-sum distribution.?

Variable annuity contracts are sold by insurance companies. Purchasers pay a premium of, for example, $10,000 for a single payment variable annuity or $50 a month for a periodic payment variable annuity. The insurance company deposits these premiums in an account which is invested in a portfolio of securities. The value of the portfolio goes up or down as the prices of its securities rise or fall.