Pre 59 1/2 usage of SPIA and the 10% penalty
If I were to utilize a Non-Qualified, 6 or 7 year SPIA @ age 45, would any portion of the payments received be subject to the 10% pre 59 1/2 penalty?
If I were to utilize a Non-Qualified, 6 or 7 year SPIA @ age 45, would any portion of the payments received be subject to the 10% pre 59 1/2 penalty?
Permalink Submitted by Alan Spross on Fri, 2010-02-12 21:39
Yes, the taxable portion of the distributions would be subject to the early withdrawal penalty unless you meet one of the exceptions. The substantially equal payments exception does not apply here because those must calculated over your life or a joint life expectancy, not a limited period such as 7 years.
Permalink Submitted by David Belk on Sat, 2010-02-13 13:43
Thank you! This is how I was intrepreting the exceptions in the code, I just could not get anyone else to confirm me…even many CPA’s…imagine that? 😯
Permalink Submitted by Alan Spross on Sat, 2010-02-13 17:06
If you have not annuitized the contract yet, you could still set up a 72q plan, which is equivalent to a 72t plan from an IRA. The distributions would have to be based on your life expectancy however, and last until you reached 59.5. They could then be stopped and the plan ends. However, the payments are likely to be too low to do you much good, and you should not set up a plan that will be insufficient combined with other funding you may have. If you have to bust the plan, you would then owe retroactive penalties plus interest for the taxable portion of all distributions back to the beginning of the plan.