SPIA from Schwab Roll over to Vanguard
I intend to hand 10% of my Roll over(all pre tax) to Vanguard(Bk wont take rollover) mainly because I want a specif $ amount cash flow.No heirs or dependants.
Can I do it before 59.5 which is 6/2008?Will I be creating a tax event of any type.I understand the monthly income will be taxed as regular income.
Also how does this bear on my RMD down the road.
Any input would be helpfull…Thank You
Permalink Submitted by Alan Spross on Mon, 2008-03-03 19:31
Do you want an SPIA, or do you just want access to funds prior to 59.5?
If you partition an amount from your rollover IRA into an SPIA IRA life annuity, distributions will be coded with a penalty exception, but you will owe ordinary income taxes on the distributions. The SPIA annuity distribution will meet the RMD requirements when you reach age 70.5. The other IRA account will have to satisfy it’s own RMD requirement separately starting at 70.5.
Since you are only 3 months shy of 59.5, you may be better served to try to stick it out those 3 months, because as of 59.5 you can take as little or as much out of the IRA as you need without any restrictions. You could then purchase your IRA SPIA annuity later on when interest rates are higher and your annuity payout will also be higher.
Another solution is to partition the current IRA into two accounts and set up a 72t plan to pay you substantially equal payments. You would only do this if you cannot hold on till June because the 72t plan must be adhered to for 5 years and is very rigid. If you only need a couple thousand dollars, most planners would advise you to simply pay the penalty rather than incur the 5 year rigid separate 72t requirements OR by taking a life annuity when interest rates are low.
This is all a function of how much you need, when you need it, and the reason. The reason is important since some reasons have penalty exceptions of their own (high medical costs, first home, disability etc)