Someone please blow a hole in this idea

[Pucky Freak]

Assuming that I do not change my career that I began in 2009, I can retire in 14 years at age 55 and collect a pension. Assuming the 6% cost increase per year in health insurance continues (non-compounding), a 22k annual health insurance "gold" plan in 2024 would rise to 42K by 2039, and 55k after another ten years, at which point Medicare would kick in.

Rather than pay well over 50% of my annual pension income towards health insurance premiums, opt for the lump sum payment in lieu of a pension and roll into a traditional IRA. Then, live off 457(b) and Roth distributions for a decade to have a MAGI of $0 and qualify for zero cost heath insurance.

With my current chronic health conditions I would pay the least total amount on healthcare under a gold plan vs. a silver or bronze plan with lower premiums. Health care sharing plans are an option too, with chronic health conditions being the most likely disqualifier.

 

[SAJ-99]

Rather than pay well over 50% of my annual pension income towards health insurance premiums, opt for the lump sum payment in lieu of a pension and roll into a traditional IRA. Then, live off 457(b) and Roth distributions for a decade to have a MAGI of $0 and qualify for zero cost heath insurance.

Not a horrible idea. Only issue is taking a lump sum transfers the investment risk from the employer/pension to you. Some can do it, some can't.

 

[SAJ-99]

Assuming that I do not change my career that I began in 2009, I can retire in 14 years at age 55 and collect a pension. Assuming the 6% cost increase per year in health insurance continues (non-compounding), a 22k annual health insurance "gold" plan in 2024 would rise to 42K by 2039, and 55k after another ten years, at which point Medicare would kick in.

Rather than pay well over 50% of my annual pension income towards health insurance premiums, opt for the lump sum payment in lieu of a pension and roll into a traditional IRA. Then, live off 457(b) and Roth distributions for a decade to have a MAGI of $0 and qualify for zero cost heath insurance.

With my current chronic health conditions I would pay the least total amount on healthcare under a gold plan vs. a silver or bronze plan with lower premiums. Health care sharing plans are an option too, with chronic health conditions being the most likely disqualifier.

Also, just thought about something. When I took out a lump sum pension payout, I rolled into my individual 401K. This isn't be able to be accesses penalty-free until 59 1/2. So when you get the check and try to put it into an individual IRA, make sure you don't get dinged on the taxes and the penalty. I'm not exactly sure how that works. If you find out, please share.

 

[TN2shot07]

Also, just thought about something. When I took out a lump sum pension payout, I rolled into my individual 401K. This isn't be able to be accesses penalty-free until 59 1/2. So when you get the check and try to put it into an individual IRA, make sure you don't get dinged on the taxes and the penalty. I'm not exactly sure how that works. If you find out, please share.

Is it possible it would work like a rollover 401k? You’d want to do a direct rollover transfer to an ira/401k and never have the money in your hands? They get funny about it if you get the money first

 

[schmalts]

Also, just thought about something. When I took out a lump sum pension payout, I rolled into my individual 401K. This isn't be able to be accesses penalty-free until 59 1/2. So when you get the check and try to put it into an individual IRA, make sure you don't get dinged on the taxes and the penalty. I'm not exactly sure how that works. If you find out, please share.

If it was rolled in, and you "retire" from the current company you are supposed to be penalty free at age 55. Called the "rule of 55" That is the way I read it. I just confirmed with a Fidelity advisor lest week. Not saying he was 100% correct but the subject came up. It was a good conversation as he also said I should do Roth conversions as well to avoid higher taxes when RMD would kick in. I really never even thought about that aspect of the retirement.

 

[TN2shot07]

If it was rolled in, and you "retire" from the current company you are supposed to be penalty free at age 55. Called the "rule of 55" That is the way I read it. I just confirmed with a Fidelity advisor lest week. Not saying he was 100% correct but the subject came up. It was a good conversation as he also said I should do Roth conversions as well to avoid higher taxes when RMD would kick in. I really never even thought about that aspect of the retirement.

I’m also not 100% on it but I think it’s a one time withdrawal, not that you will have access to the 401k the same as if you were 59 1/2. If you were leaving at 55 and you needed to fund a “bridge” account to tide you over to full retirement age it could work. You can get it penalty free but will still get a nice tax bill

 

[SAJ-99]

Is it possible it would work like a rollover 401k? You’d want to do a direct rollover transfer to an ira/401k and never have the money in your hands? They get funny about it if you get the money first

When I took the buyout they just sent me a check. Then I sent the check to the broker and deposited to the 401k. There was no issue because it was sent to the IRS as a rollover by both sender and receiver. If the amounts didn’t match they would have dinged me.

My question was more about the age difference between plans, and I think the rule of 55 answers it.

 

[Treeshark]

No experience with employer pensions, but I wonder if you could roll some of it over directly to a brokerage account? You’d have to pay capital gains tax upon withdrawal but it would offer you max flexibility.

I don’t believe long term capital gains would show up as earned income but I am not certain of that- if not, it’s another way to keep the healthcare plan cost low with no early withdrawal age or RMD restrictions.

 

[Pucky Freak]

Pension lump sum is penalty free at 55, but it is earned income if it is cashed or moved to brokerage. That would bump me way up on the income tax bracket. The lump sum can be rolled into another tax deferred retirement account (traditional IRA) which would postpone tax from earned income. The account would sit untouched for 10 years (between age 55 and 65), so it wouldn’t matter that I moved it from penalty free at 55 to penalty free at 59 1/2.

457(b) is also penalty free at 55. My thought is to load up my after tax 457(b) for the next 14 years rather than load up the Roth IRA’s of me and my wife. That’s why I am thinking this through so far in advance, as I’d need a big pile of cash to live on between 55 and 59 1/2.

My biggest concern is that the government will change the rules about MAGI and subsidized health insurance. I’m thinking that if enough people have the same strategy as me, they will close the loophole.

Imagine me at 55 with a couple million in the bank and 100k annual income, but it is all after tax distributions. As far as ACA is concerned, I’m indigent, and so I don’t pay for healthcare. I’m thinking that somehow this isn’t going to stand the test of time, but who knows.