While we don’t hear much about them these days it seems, pensions do still exist and are a part of many Americans’ retirement funds (especially if they worked for the government). Many of those pension plans make it so that recipients also have to take required minimum distributions (RMDs), just like other retirement plans. There are a few nuances when it comes to those RMDs and there are at least two special rules for RMDs taken from pension plans. One special rule, which is the one I want to highlight in the post, kicks in when a lump sum payment is made by the person to the retiree during a year when an RMD would also have to be taken. I would just like to note here that lump sum payments (also know as lump sum buyouts) are not that common, but they are still a possibility worth at least thinking about. Anyways, in a situation in which the lump sum buyout is taken in a year where the retiree needs to take an RMD the RMD will be taken out of the lump sum payment and cannot be rolled over into an IRA. While this probably isn’t a big deal in reality, it is something that you do need to think about if you take a lump sum payment from a pension while collecting RMDs. Depending on how big the payment is, the RMD could be fairly substantial and you will need to think of what you want to do with that money. There are two ways in which that RMD can be calculated. The first is to treat the lump sum as the account balance as of December 31 the year prior (i.e. If the lump sum was taken today, that total would be viewed as the account balance on December 31, 2020). The other way is to treat the pension as an annuity and have the RMD portion of the lump sum viewed as one year of annuity payments (which would involve calculations using the monthly payments the pension is making). It’s safe to say that the two different calculations will produce different RMD amounts. Again, this is important to think about if you are taking monthly pension payouts currently or know that a pension will be part of your retirement. If you have questions about what to do with your pension payments or want to learn more about how RMDs will factor into that, then you should speak with a certified financial planner or wealth manager.