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How a $310,000 pension payout becomes a five-figure tax bill before it reaches your IRA

9/8/2026

A $310,000 pension buyout can shrink by $62,000 the moment a retiree makes a single paperwork error, asking the plan to cut the check to himself instead of directly to a receiving IRA custodian.

The case for the lump sum is real, but the mechanics can erase a year's worth of tax planning before the money clears. The anatomy of the error begins with IRS treatment of indirect rollovers.

When a qualified plan distributes money directly to the participant, two rules engage automatically.

The plan must withhold 20% for federal tax, so a $310,000 payout produces a check for $248,000, with $62,000 sent to the Treasury.