Benefits to getting a pension as a lump sum include the ability to roll it over tax-deferred into an IRA account and protection of the funds in case the administering company folds, reports CNN Money. Lump sum payouts give account holders access to large amounts of money immediately, states About.com.Continue Reading
When employees opt for monthly payments from pension plans, they are dependent on the stability of the company that is the plan sponsor to keep their funds secure, according to CNN Money. If the company fails, the Pension Benefits Guarantee Corporation does not always pay the entire amount of pension coverage. Taking a lump sum distribution allows the account holder to invest the entire amount into a more secure IRA plan. Additionally, when pension plans are distributed in monthly payments, there is usually no adjustment for inflation, whereas lump sum payouts transferred to IRA accounts can generate investment gain, as stated by Kiplinger.
Taxes are deferred on a rollover directly from the pension plan sponsor to an IRA account, as reported by the IRS. Lumps sums received by the pension account holder directly and then transferred to an IRA within 60 days are also not taxed, but 20 percent of the amount is subject to withholding.Learn more about Financial Planning