Most people do not make major changes in investments when starting a 72t plan. Since the client will roughly be taking 5% or so out of the IRA annually, all they really need is the liquidity to have the cash available to fund the distributions at whatever frequency they are to be taken. Mutual funds can be partially redeemed, a few shares of stock sold, or dividends from bond mutual funds, bond interest etc can be held in cash in the IRA rather than reinvested in more shares.

That said, an SPIA can be used in a 72t plan if desired. A custodial IRA account can hold the SPIA and the annuity payments are paid to the IRA. Then this cash is distributed from the IRA to satisfy the 72t payment amount. An IRA custodian that is able to handle this kind of set up is of course a requirement.

Another option is to determine the annual 72t payment. Then transfer the amount needed from the current IRA to an insurance company annuity IRA that will produce the exact amount of annual annuity payment as the 72t distribution. The other IRA account balance is used to calculate the 72t payment, but no distributions are taken from the original IRA since the annuity payout matches the 72t requirement. The SPIA can be selected with a term that ends when the 72t plan ends. Of course, the other IRA cannot receive contributions or issue distributions or the plan is busted. In this type of setup you need to be sure that each IRA custodian realizes that their IRA is part of the 72t plan and it is critical that the annual distributions not deviate at all from the required amount. Without this understanding, this strategy becomes risky if the insuror comes up with a surprise change to the payout. There is somewhat less control when an insurance company product is involved and therefore using an SPIA is generally not recommended for 72t plans.

• Flag as spam
• Log in to Reply