You may have encountered the term ‘lump sum’ in a number of instances including advertisements. It is commonly mentioned in any instance that involves a large amount of monies that could otherwise be paid in installments. As installments are smaller, multiple payments, a lump sum is a single large payment.

While the prospect of receiving a large amount at once seems appealing, the specifics may change your mind. For a number of reasons the amount you receive from a lump sum payment is basically never equal to the number that you are initially intended to receive. It should be noted that this is often true with installments though also.

There are a number of instances when you may have to choose whether to accept a lump sum payment or choose to receive multiple installments. Two examples of this are when you are listed as a beneficiary of an insurance policy and when it is time to receive distribution of your pension.

Simply because you don’t choose to receive a lump sum that may not mean that you have say in how the monies are managed prior to distribution. You may have a number of options and learning more about them and making informed decisions can help you to get the most out of your money.

Before you know the amount of monies you will keep from your lump sum payment you will be required to pay taxes on it. These sorts of taxes are referred to as lump sum taxes and they are calculated based on the details of the lump sum. Factors such as standard income and tax deductions aren’t involved in their calculation.

Instead of a tiered system lump sum taxes, like other regressive taxes, allow a flat rate to applied to all cases. There are proponents and opponents of such taxes with compelling evidence for and against. If your case is one that would lift you to a higher tier this is an instance when you will keep more money as a result of this tax system.

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