Thank You

L1: Thank You
Thanks to both Jim and Ed B, I was pleased to see I was tracking in the right direction. My custodian is Morgan Stanley, while the advisor I work with may or may not be intimate with 72T’s, I’m sure there must be someone with expertise within the organization.
By fraught with danger, I was thinking along the lines of having a severe shortfall down the road. Part of my IRA is a lump sum pension, so there is no yearly annuity .
I also looked at some information on Guaranteed Annuities, but that led to another whole new set of questions. Also my perception was that it almost seemed to be a bit ‘too good to be true’, there may have been something that I wasn’t getting.
I will keep on attempting to do diligent research before jumping into anything. However I did take notice of the timing with regards to early December rather than late December. My plan would be to take a years withdrawal late fall. If I understand the terminology that would be my stub year.
Thanks again, I’m so happy I found this site and especially the forum.2007-07-02 16:01, By: Padruig, IP: [70.195.64.171]

L2: Thank YouThe other responses were very good.
Obviously, by setting up the SEPP, you are drawing on your retirement funds earlier than recommended and when you could easily have 40 years remaining for these funds to provide income for you. I would forget the guaranteed annuity at this point, your SS will already provide you with that at 62 or later. You can always buy an immediate annuity later but it”s too soon for you to make an irrevocable decision. That annuity income cannot be outlived, true, but it certainly can evolve into being transformed into inadequacy by inflation.
One last point – since this is your initial stub year and you can take out either a full year or pro rate from your beginning month, you might start with the pro rated figure in case you get another job or something by year end. If not, you can always distribute the rest of the full year amount, but if you take another job, you will save the tax deferral on the other 6 months. This flexibility only exists in the first stub year, and in some cases the last. You can also take a one time switch to the RMD method later on, if you want to preserve your IRA assets in the SEPP account.
2007-07-02 16:25, By: Alan S., IP: [24.116.66.98]

L2: Thank YouWhen we talk about a “stub year,” it is usually associated with monthly distributions. For example, assume you want $12,000 per year taken $1,000 per month, and you start your first distribution in August. In the first year, taking monthly distributions, you would receive $5,000 and not $12,000. That”s OK. In subsequent years you will take a total of $12,000 at the rate of $1,000 per month.
Now in Alan”s last point, if you started monthly distributions in 2007 and found a new job either in 2007 or early 2008, then abandon the 72(t), pay the 10% penalty and taxes, and go back to living on your current income and let your IRA”s “cook.” Begin funding you new company”s K-plan and individual Roth IRA”s or whatever else works for your situation. Odds are good … unless you are very sick … that you will live longer in retirement than your working years.
When I mentioned using a Variable Annuity to fund your IRA, I was not talking about “annuitizing” the account or buying an “immediate annuity”and taking an “annuity income.” The terminology gets a little muddy so you need to have a clear understanding. You can use a variable annuity just like any other investment while it”s in the category called “deferral,” meaning you are not taking an “annuity income” but rather letting it grow. You could take”systematic distributions” while in”deferral” and fund your 72(t) plan. Used this way, VA”s are very flexible. I agree with Alan that you do not need an “annuity income.” Buta “deferred VA” might be something to consider since there are some really great “living benefits” you can build into modern contracts. Get with an advisor who is knowledgeable about these products. You might seek out an independent advisor rather than the broker in MS since they are typically not as “independent” as you might need for your situation.
Glad we could be of assistance to you in your questions.
Jim2007-07-03 07:17, By: Jim, IP: [24.252.195.14]

L2: Thank YouThe choice of whether to buy an annuity or not is certainly one that is quite personal. My thought on annuities is that they are not as flexible as I would like, they tend to have a lot of fees attached to them, and once you buy one, your money is gone. I know that thereis a bewildering array of different kinds of annuities but none of them seem satisfactory to me. One suggestion I would make would be to do some on-line research into annuities and thoroughly understand what”s available to you, what they will cost you, and what they will give you. Knowing all that will allow you to make an informed decision. A second suggestion, if you are still interested in annuities after that,would be to look at the low cost annuities provided by Vanguard and perhaps a few others, such as T Rowe Price and Fidelity. For my money, I can”t think of a single thing that an annuity can do for me that I can”t do for myself via investing in a well diversified portfolio of low cost mutual funds but others may feel differently about it. That”s fine as this decision is quite personal in nature and what works for one person may not work for another.
Using the 72t exception to the early withdrawal tax allows one to “annuitize” their IRA and receive regular payments from it, just as if it was an annuity. Doing this not only provides a stream of regular income but also preserves your capital. Yes, markets will move up and down with time but this effect can be managed successfully via having enough cash in a money market fund to ride out periods of depressed stock prices, avoiding having to sell shares during a recession for example. While this process does not guarantee a fixed income stream for life, the odds of it doing so are quite good if a moderate pay-out rate is selected.
Ed2007-07-04 16:37, By: Ed_B, IP: [67.170.159.37]