SPIA Lifetime payout under 59.5

Submitted by Shawn Danziger on Fri, 2014-02-28 14:49

Can anyone shed some light on whether a SPIA lifetime payout from an IRA for someone under 59 1/2 can satisfy 72t?

Permalink Submitted by Alan - IRA critic on Fri, 2014-02-28 17:26

No, it would not. To waive the penalty, the annual distribution would have to be calculated under one of the three approved methods for substantially equal periodic payments. An SPIA payout is based on the insurer mortality tables and assumptions. I suppose if the insurer used one of the 3 methods to “back into” the distribution amount and the taxpayer documented the calculations, the distributions would comply. The insuror should not provide the exception code in Box 7 of the 1099R unless the distribution complies with one of the 3 methods. Perhaps it would be better to do a regular SEPP plan and then transfer the IRA into an SPIA IRA annuity after the 72t plan has reached it’s modification date.
Note that the answer is different for a NQ annuity because Sec 72q contains a separate exception for life annuities. 72t does not contain this exception, leaving only a SEPP plan or a different exception such as disability, high medical costs etc