Fixed SPIAs
Don’t know much about FIXED SPIAs. Could a client age 52 purchase a Fixed lifetime SPIA and not be subject to the under age 59 1/2 penalty? What about a 5-year Fixed SPIA?
Don’t know much about FIXED SPIAs. Could a client age 52 purchase a Fixed lifetime SPIA and not be subject to the under age 59 1/2 penalty? What about a 5-year Fixed SPIA?
Permalink Submitted by Alan Spross on Sat, 2008-10-25 21:59
Al,
It appears per Sec 72q (applies to NQ plans), that the penalty exception applies to all immediate annuity contracts, defined as follows in 72(u):
>>>>>>>>>>>>>>>>>>>>
(4) Immediate annuity
For purposes of this subsection, the term “immediate annuity” means an annuity –
(A) which is purchased with a single premium or annuity consideration,
(B) the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and
(C) which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.
>>>>>>> >>>>>>>>>>>>>
It was somewhat surprising to see that there is no minimum period for the SPIA to run, and that would make the 5 year plan exempt.
Permalink Submitted by Al Fry on Sun, 2008-10-26 02:49
TKU. The same thing applies to N-Q annuities, as well (which I am more familiar with). A deferred annuity that is annuitized after 12 months for a period less than lifetime IS subject to the penalty. If annuitized within 12 months, the annuity period can be for as few as 3 years and the exception applies.
Permalink Submitted by fairira on Tue, 2008-10-28 16:45
Re the Sec 72q penalty exception for under age 59-1/2 that applies to all immediate annuity contracts:
72(u)(4) states “For purposes of this subsection, the term “immediate annuity” means an annuity . . . (C) which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.”
Q.: If someone age 50 took out an SPIA with an inflation-protection option which would lead to an increasing payment each year so that by age 55 the annual payment could be 20% or more higher than initially, would this negate the penalty exception for SEPP?
Thank you for your views.
Permalink Submitted by Al Fry on Thu, 2008-10-30 02:29
If requested at the start of the SEPP, many ccarriers would accept this as a legitimate SEPP, based on two PLRs.