Lump sum pension, backdoor Roth IRA Q & A

Question: If I choose the lump sum pension option when I retire, is it taxable to me?

Answer: Yes it is, if you withdraw it rather than rolling it over to an IRA. If you don’t want to risk losing the lump sum rollover in the stock markets and still want a monthly pension check, consider rolling it over into an IRA pension annuity with a life insurance company. They may pay you a higher monthly income than your company would have. Plus you keep control of the lump sum as a death benefit for your heirs. It’s a once-in-a-lifetime decision and well worth exploring all of your options.

Question: What is a backdoor Roth IRA I keep hearing about?

Answer: A backdoor Roth is when you are above the income thresholds to contribute to a Roth directly, you instead contribute to a non-deductible traditional IRA and then almost immediately convert it to a Roth IRA before any gains have built up. In essence there is no tax to pay on the conversion, and there are no income limits to do a conversion. However, be careful if you have other traditional IRA’s. There is a pro-rata rule that can make some of the Roth conversion taxable to you. Make sure you know what you are doing, or talk to a tax professional.

Question: My son will inherit my assets when I pass, but he’s really terrible at managing money. Is there any way I can keep him from spending his entire inheritance when he receives it?

Answer: Yes, one way is to set up a testamentary trust within your will. This trust does not come into existence until after you’ve passed. In your will, you name the trustee and tell them how you would like the funds disbursed to your son. For example, you might disperse it to him periodically over many years, or you might tell the trustee to only allow him to use it for his general health, maintenance, education and support. An attorney could set this up for you quite easily. This also works well when minor grandchildren could inherit assets.

Have Questions? Send financial questions to Yvonne Marsh, CFP®, CPA at, or submit them at and she will review your question for possible inclusion in a future column.