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Received Lump Sum Pension/Paid Off Mortgage

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    Received Lump Sum Pension/Paid Off Mortgage

    Client had reached the age of 60 and had a $200K mortgage which he was tired of making the mortgage payments of $1700. So what did he do? He chose a lump sum pension payout of $200K instead of monthly forever. Took the lump sum and paid off the mortgage. Now he doesn't have a mortgage payment, and consequently, no home interest writeoff, no pension and when adding the $200K to his income, now has a $65K tax liability. Is there any suggestions out there that could ease the burden for 2011 for him?

    #2
    I can't help him.....Maybe an IRS payment plan of $1,700 a month will help.


    He needs to get a reverse mortgage...................... if he has no other source of income or liquid assets.
    Last edited by BOB W; 05-02-2011, 02:43 PM.
    This post is for discussion purposes only and should be verified with other sources before actual use.

    Many times I post additional info on the post, Click on "message board" for updated content.

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      #3
      Tell him to call you about the tax consequences before he makes any rash financial moves. Oh, sorry, that train has already left the station.

      I'm thinking he can get his monthly installment agreement payment down to about $1,250, but other than that, about all he accomplished was to reduce his mortgage to $65,000 and his monthly pension income to -0-.
      "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

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        #4
        Bad choice

        I had the same situation in 1985, I took the lump-sum, made some withdrawals subject to penalty for early withdrawals, but invested the money. Today I've paid off that mortgage and two others and still have more in my rollover IRA than I started with.

        Never put all your eggs in one basket.

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          #5
          Part-time Job

          I hear McDonald's is hiring 50,000 new employees...

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            #6
            Bad Example

            And, you now have an example (without identifying the guilty by name) with real dollar amounts to use with your other clients to show how much it can cost to NOT call you when they are considering any transactions with tax consequences.

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              #7
              The only straight face when talking about this is to the client.
              This post is for discussion purposes only and should be verified with other sources before actual use.

              Many times I post additional info on the post, Click on "message board" for updated content.

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                #8
                sell the house.. buy a 50k one.. pay off the taxes.. and hope he has some other source of income.

                chris

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                  #9
                  Maybe he could close the loop by trying an OIC based on Doubt as to Collectibility because now he has no income.

                  (Of course, that's a bit like killing your parents and then asking for mercy because you're an orphan).
                  "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

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                    #10
                    Won't work because he can sell the house to pay the tax bill. Or mortgage it.

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                      #11
                      Originally posted by zeros View Post
                      Client had reached the age of 60 and had a $200K mortgage which he was tired of making the mortgage payments of $1700. So what did he do? He chose a lump sum pension payout of $200K instead of monthly forever. Took the lump sum and paid off the mortgage. Now he doesn't have a mortgage payment, and consequently, no home interest writeoff, no pension and when adding the $200K to his income, now has a $65K tax liability. Is there any suggestions out there that could ease the burden for 2011 for him?
                      Wow, what would his pension payment have been had he not done this? I suppose if he wished he could now do a reverse mortgage and let them pay him a monthly income. Or he could sell the house tax-free and try to invest that money to get some kind of addl income from it. But there is not one thing he can do that I know of to obviate this 2011 tax burden after the fact. Unless by some chance his company would reverse his election. He would have to pay the $$$ back. By mortgaging the house in all likelihood.

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                        #12
                        Additional Info

                        He has a wife that has a full time position. His pension would have been around $1700 per month. Sounds like the case is hopeless. I suppose he can make sure that he paid in 2011 at least his liability in 2010 so he doesn't get a penalty.
                        Last edited by zeros; 05-03-2011, 08:41 AM.

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                          #13
                          no one has considered the income averaging. i believe it is still available (5 yr) for lump sum distributions unless OP had already figured the $65K was from that computation.

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                            #14
                            Born before 1936?

                            Isn't income averaging only for people born before 1936?

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                              #15
                              From the IRS Website

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