72(t) Limits in Qualified Annuities
Can anyone provide evidence that when a client is annuitizing an annuity over their life time, that the 72(t)-Limits do not apply, as in 120% of the mid AFR?
I thought I had read somewhere, that if you are annuitizing and starting substantially equal payments that the annuitized monthly amount did not have any limits, unlike using an IRA, where you have to be within the applicable AFR limit.
Can someone please clarify this for me?
Permalink Submitted by Alan Spross on Tue, 2009-03-31 01:06
Actually, they generally do apply per attached IRS Notice which applies the 72t rules to 72q:
http://www.irs.gov/irb/2004-09_IRB/ar09.html
However, from a practical standpoint, the insurance company should be adhering to these provisions when they quote an immediate annuity distribution figure. They will then code the 1099R with the exception code 2 until the 1099R reverts to a normal coding of 7. I have not heard of a case where the IRS questioned the amount of the distribution or otherwise attempted to levy a penalty. These payments also satisfy RMD requirements in the event the immediate annuity is in an IRA annuity.
It can’t hurt for a client to get confirmation in writing that the distribution will comply, particularly when joint annuities, inflation adjustments etc are involved in the payout.