lifetime annuity satisfy the 72t requirement

Submitted by Mike LaRose on Mon, 2012-06-18 17:01

I am looking to try and maximize income for a client w/d from thier IRA. The client is 50 years old. If we do sometype of lifetime payout annuity will that disqualify the early w/d penalty?

Thanks,

Mike



Submitted by Alan Spross on Mon, 2012-06-18 18:27

You would be limited to using one of the 3 methods outlined in RR 2002-62 attached:

http://www.72t.net/72t/IRS/Revenue/Ruling/2002-62

If a life annuity was constructed such that the payout fell under these guidelines, it would qualify for the exception. There is flexibility to use a lower interest rate than the current months rate of 1.57%, but the annuity cannot pay out more than allowed under 2002-62.

Conversely, a non qualified annuity under Sec 72q can qualify under an additional exception for an immediate life annuity without these calculation restraints. An IRA however falls under 72t and 72t does not have an unqualified immediate annuity exception.



Submitted by James Smith on Fri, 2012-07-06 13:56

A request was made to include this topic on the 2012-2013 Guidance Priority List.

“guidance on the circumstances in which annuity payments constitute substantially equal periodic payments (“SEPPs”) within the meaning of sections 72(t)(2)(A)(iv) and 72(q)(2)(D)”

http://www.annuity-insurers.org/pdfs/5.1.12.attach.pdf



Submitted by Alan Spross on Fri, 2012-07-06 18:02

Thank you for this link.

There is alot to be desired in IRS Reg 1.401(a)9-6 with respect to annuitized RMDs. The Reg is preoccupied with calculations that are disallowed because they result in longer payouts to employees and beneficiaries. Meanwhile, period certain annuities for periods less than life expectancy are not addressed with respect to RMD treatment.

Annuitization exceptions to the 72t penalties also need clarification, so hopefully the IRS will address some of these questions.



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