Use of SPIA to avoid pre-59 1/2 rules
Prospective client, age 54, has been advised to roll his company pension to an IRA. Upon funding the IRA with the rollover, purchase a SPIA and begin monthly withdrawals. Advisor states that this technique will permit the client to receive a larger monthly payout and avoid the 72(t) restrictions.
Please comment on this recommendation.
Thank you,
HWA
Permalink Submitted by Alan Spross on Thu, 2008-05-29 01:00
Yes, it would avoid the penalty, but it is a lifetime irrevocable decision vrs only about 5 years for his 72t to end and then he would have full flexibility with respect to the remaining funds other than RMDs. Granted, if he has a long life expectancy the SPIA benefit is more compelling.
It is also possible for a 54 year old who just retired to meet the age 55 separation exception if he will turn 55 prior to year end and separated this year.
Also see the thread started by Mark that also addresses the purchase of an SPIA in an IRA. An SPIA pays out more than the usual RMD schedule in the first few years, but less later on because the payout is level, the normal RMDs increase and the growth of the assets in excess of the applied interest rate goes to the insurance company.