Hi – I wanted to check with you whether annuitizing the IRA annuity for the period certain which would be equivalent to the life expectancy, would avoid the 10% penalty? I know the other options are SEPP or straight life expectancy. The owner of the contract, in case of early death, wishes to have any residue money to be paid to the beneficiary for the remainder of period certain. Thank you.
Please find the clarification, my original question referes to the IRA is set up in annuity contract, the ways to avoid the 10% penalty pre 59 1/2 are: SEPP and annuitization for a life expectancy (disregard the medical, education costs, disability.) The question came up – if the contract is set up just as a stright life annuitization, upon passing the payments end. I assume if the straight life annuitization is set up with a period certain or with cash refund, that would also avoid 10% penalty?
Permalink Submitted by Alan - IRA critic on Fri, 2019-09-13 18:50
No, there is no annuitization penalty waiver for IRA distributions. For continuing penalty waivers a SEPP must be set up using one of the 3 approved calculation methods. Of course, there are other penalty waivers such as high medical costs, higher education costs, disability, etc but many of these costs are not consistent from year to year. Another consideration when annutizing an IRA before 70.5 over life expectancy or joint life expectancy is that the first distribution date becomes the RMD required beginning date. As such all these payments are RMDs and not eligible for rollover.