Today we will be looking at a new series 😀 I recently have a case at work where the client quit his job for another opportunity and he had 2 options:
#1 Keep his pension plan at his old employer and receive an annuity at retirement.
#2 Cash value (which is the actuarial value of the annuity as of today).
This is a huge decision to make as it will impact the rest of your life. In this first post about taking the cash value or the annuity I will explain the process of cashing your pension plan.
Do you simply receive a big fat check and you go away?
It’s a little bit more complicated than that. In fact, you will receive TWO big fat check if you decide to cash-in your pension plan. How come? It’s because you have a part that will go in a registered account (that we will look at it later on) and the other part will be non-registered money.
To be honest, I don’t exactly remember why you receive non-registered money that you can do everything with it. From what I remember, it is linked to a portion of the employer’s contribution. What really sucks is that this part is fully taxable in the year you receive it. Therefore, if you receive a check of 50K, you can bet that about 20K will go in taxes (as the 50K is directly added to your existing income and is therefore taxable at your marginal tax rate).
The “real cash” is usually the smaller part. For example, the latest pension plan I looked at was in the amount of 292K split with 236K as registered fund and only 56K in “real cash”.
What happens to your money when you cash in your pension plan?
The 1st part (the biggest one) is directed into a locked-in registered plan. This means that you can’t withdraw money from it until you are fully retired as opposed to a regular RRSP where you can withdraw from it at any time of your life (but keep in mind that withdrawal are taxed according to your marginal tax rate).
At this time, it is now up to you to manage your money properly. You become fully responsible to invest this amount in order to assure a wealthy retirement.
Tomorrow, I’ll keep writing about the cash value option. There are additional information you need to know about cashing your pension plan…
|How I Suck at Not Paying Debts||Hitting 6 Figures Income at 28|
|How I Get a Huge Income Raise Each Year||Making $125K Online in 12 months|
|How I Buy Blogs||Most Debated Articles: The Primerica Saga|
|How I Have Survived My MBA||What is So Wrong With Making Money?|
|How I run multiples blogs and makes money without burning out|