Roll a Lump-Sum Pension Into an IRA

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Roll Over a Lump-Sum Pension Payout Into an IRA

Be sure to watch out for the tax bite when choosing between a traditional or Roth individual retirement account.


I’m looking into options for rolling over a pension payout. Can I roll it over to a Roth IRA? --T.L., El Paso, Texas

See Also: 10 Things You Must Know About Traditional IRAs

You generally can roll a pension lump sum into a Roth IRA, but that may not be a good idea. You’ll have to pay taxes on the rollover, as you would with any Roth conversion, and a big conversion in one year could bump you into a higher tax bracket or have other ripple effects, such as making you subject to the Medicare Part B and Part D high-income surcharges.

Another option is to roll the pension money directly into a traditional IRA, which creates no new tax bill, then gradually convert some of the money to a Roth every year. If you use that approach, keep an eye on your tax bracket and other income limits.

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