72(t) Cash value vs Income Value
L1: 72(t) Cash value vs Income Valuein an indexed annuity, where there is both a cash value account (not adjusted for early withdrawal) and what may be a call a an Income Account used for the purposes of providing a life time income or death benefit. Is it correct to use only the cash account for the 72(t) calculation or as assumed by some persons the Income value even though that amount is not accessible to the annuitant as a lump sum? Where in the IRA Code, if any, is there a section which provides a written guide to this question.2017-02-22 13:38, By: retsystems, IP: [188.8.131.52]
L2: 72(t) Cash value vs Income ValueI am not aware of any IRS guidance on this question. The IRS has issued guidance on valuing these annuities for purposes of Roth conversions and for RMD calculation under which certain fringe benefits are added to the cash value. But those Regulations should not be inferred to apply here, and in addition they differ from each other.
If you are starting a 72t with one of these annuities, be sure that you do not trigger a distribution from the annuity that may conflict with your 72t amount. Your 1099R at year end of year 1must equal the annual72t calculation or a pro rated per month proportion of it.As for the initial value when determining the 72t annual calculation, particularly if you are starting the plan very soon, if would be safer to use the IRA annuity 12/31/2016value the custodian reported on Form 5498 or equivalent report that you just received by the end of January.2017-02-22 17:04, By: Alan S, IP: [184.108.40.206]
L3: 72(t) Cash value vs Income ValueAnnuities can be very difficult to understand.
The CASH VALUE is the value used for Retirement Plan valuations. This is usually lower than the INCOME AMOUNT VALUE which often includes guaranteed step ups on an annual or more frequent basis.
The “INCOME AMOUNT VALUE” (often known as the stepped up value) is used only as the basis for future distributions, often after a 10-year “waiting period”. At that time, distributions are usually 5% of that value each year. Rarely will anyone receive this higher amount in a lump sum, except at death.
Both of these, plus the Death Benefit, all decrease equally when distributions are taken.2017-02-22 18:36, By: dlzallestaxes, IP: [220.127.116.11]