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Should I Take My Pension In Payments Or As Lump Sum?

Laurie is going to start us off this

hour and Laurie's an Idaho hey Laurie

welcome to the Dave Ramsey show thank

you my question for you is whether it is

a good idea to take a lump sum for your

pension payments or take the payments or

take that lump sum and roll it into a

self-directed real estate IRA we just

learned recently about that from our CPA

so we're just not sure what would be the

best route to go my husband 62 turned 62

yesterday wanted to retire yesterday and

but we're not quite there we don't think

that he were totally debt-free yeah in

general terms I always take the lump sum

and roll it to an IRA okay here's why

pensions are highly regulated and they

make they have they have to invest in

such a way that they make a substandard

rate of return and so a typical pension

is going to make 6 to 7% in a 10 to a

12% world okay so they don't do very

well so if you just took the money and

invested it in good mutual funds you

would make more money than the pension

would pay you okay okay that's thing one

thing too is when you die the pension

dies with you right okay and so but if

you roll it to an IRA it's now an asset

of yours it's an estate and so what's

the lump sum pension that they're

offering you one hundred and forty seven

thousand okay so your your heirs are

gonna get one hundred and forty seven

thousand or your heirs are going to get

zero yeah that's amazing

yeah that's fairly easy math for me I

can do that one okay so that's why I

roll it now then I would either roll it

I typically say just roll it to mutual

funds and a you know a typical IRA a

traditional IRA

there's no taxes on it it's it's there

grows it's going to do well you have an

interest in real estate and your CPA

introduced you to a self-directed IRA

for a piece of real estate if you bought

a hundred and forty thousand dollar

rental house inside of this IRA

with a self-directed IRA you can do that

the only problem is is that it is it's a

bit cumbersome because you now are

operating a rental property inside an

IRA and so when you when you like need

to fix it when it makes a profit the

profits trapped in there until you pull

it out and pay taxes on it okay and it's

and you've got to do all of your

operational decisions you want to buy

heating air unit it has to be bought

with money in the IRA it can't be bought

with your money outside the IRA so you

have to treat it like it's a standalone

separate business and there's no

embezzlement allowed you follow me right

and so it's a pretty stinkin cumbersome

I'm not a big fan of it unless you are

just really awesome people with real

estate you'd love real estate you're

very good at it this is this would be

your 10th property you've already got a

bunch of other properties but if this is

your very very first rental property I

would never do that inside a

self-directed IRA okay I think I want

you to learn real estate outside of that

yes Mike my dad was a real estate broker

so I've written raised in the business

my son-in-law is a very successful you

know business a real estate property

management owner but we have not been

and we've kind of regretted not getting

involved in it sooner you know where

we're at the market housing market is

really high so that's another thing

against us it's a bad time to buy

because it's so high no what I would

propose then let's roll it to an IRA and

some mutual funds and let it sit there

and he's only your guys he's only 62 you

guys are still young you might look up

and that hundred and fifty turns into

300 by the time you're 70 and maybe that

market cools off and maybe then you want

to buy some real estate all right so

then if we did that then can you take

money out of that IRA then and do it

roll that over to a person yeah you can

you can roll a traditional IRA of oh

four oh one K anything into a

self-directed IRA oh okay at any time so

my point is you don't have to

make the decision today right okay but I

would make the decision on the lump sum

distribution and up and rolling it to

your IRA because it's a hundred forty

seven thousand dollars more to your

heirs that's simple hey thanks for the

call