Immediate IRA Annuity before age 59 1/2
I am 52 and considering buying an immediate annuity with my IRA.
I would receive monthly payments from the annuity for the rest of my life.
I know that I will owe ordinary income taxes on the payments I receive each year.
Would the payments I receive from this immediate IRA annuity be subject to the 10% penalty tax for taking a distribution from the IRA before age 59 1/2?
Permalink Submitted by Alan - IRA critic on Mon, 2015-02-23 16:55
Yes, they would be penalized up to age 59.5. While a 72t plan can be established with IRA funds, the distribution must exactly meet one of the 3 IRS approved methods for a 72t plan and an immediate annuity distribution will not match that calculation unless the insurance company is willing to match up to one of these methods for their distributions, which is unlikely. Conversely, non qualified annuities have a specific penalty exception for immediate annuities which is not limited to one of the 3 IRS approved methods, so you could do this with a non qualified annuity but not an IRA or qualified plan. You might consider a 72t plan from your IRA which will run into you hit 59.5, then you could buy an IRA SPIA after that if you wanted to. A 72t plan will produce an annual distribution at today’s low interest rates of roughly 4.5% of the account balance.
Permalink Submitted by Robert Wright on Mon, 2015-02-23 21:08
Thanks Alan.