Can You Roll Over a Pension Plan Into an IRA?

Rolling your pension plan into an IRA is a fairly simple process.

Rolling your pension plan into an IRA is a fairly simple process.

Many employers offer pension plans to help employees save for retirement. Some plans are funded by the employer, but others allow you to make your own contributions. Pension plans are designed to begin paying benefits once you retire, but you may be able to cash out your plan early in certain situations. Rolling your pension plan money into an IRA can protect your retirement savings and help you avoid a tax penalty.


Before you can take money out of your pension plan, make sure you meet certain eligibility requirements. Generally, federal law says you must have at least 10 years of service before you can access the money if you're still working for your employer. Plans do have the option to pay out benefits sooner, so check with your company to find out what the rules are. If you decide to leave your job to start a family or make a career change, your employer has to let you roll your pension benefits over.

Rollover Options

The easiest way to transfer money from your pension fund to an IRA is a direct rollover. A direct rollover means that your plan administrator is responsible for transferring the money from your pension plan to your IRA. The transfer can be done electronically or by mailing a check to the company that manages your IRA. If a direct rollover isn't an option, then you can ask the plan administrator to send you a check for your account balance. Once you get the check, you're responsible for making sure that the money is deposited into your IRA.

Tax Implications

If you're doing an indirect rollover of your pension benefits, your plan manager will automatically withhold 20 percent for taxes. When you roll the rest of the money over to an IRA, you'll have to make up the difference if you want to avoid a tax penalty. Otherwise, the IRS will treat it as a distribution, which means you'll have to pay income tax on the money along with a 10-percent early-withdrawal penalty.


If you don't roll any of your pension money over within 60 days of cashing out your plan, you'll owe income tax on the whole amount plus the penalty. If you're taking out a large chunk of cash, this might push you into the next tax bracket, which means you could end up with a huge tax bill. Typically, the pension plan administrator is responsible for deciding how plan funds should be invested. Once you roll your pension money over, you'll be responsible for deciding how to invest it. You'll need to choose your investments wisely to make sure you're getting the most value out of your IRA.


About the Author

Rebecca Lake is a freelance writer and virtual assistant living in the southeast. She has been writing professionally since 2009 for various websites. Lake received her master's degree in criminal justice from Charleston Southern University.

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