72T Tax Free

L1: 72T Tax FreeAbout 10 days ago there was a posting about how to get tax free withdrawals using 72T from one’s IRAs with a link to a website as well as some well founded skepticism about being able to do this.Well, I contacted the guy, who turns out to be a life/annuity salesman in Arizona. Here is how it works (or doesn’t work) —-Assume John has a $1,000,000 IRA which under normal circumstance would buy a life annuity of $80,500 per year all of which would be 100% taxable because he has no basis in the IRA. Estimated annual tax is approx. $22,500 with John in the 28% tax bracket. Our salesman instead sells him an annuity that only pays $76,500 (the same as above but only utilizing $950,000 of the $1mm) and then “refunds” $25,000 or so each year back to John for the first 2 years in order to make it look like the IRA / annuity distributions are tax free for the first 2 or so years. There is nothing tax free here at all.In fact, this is obviously a not the case. The annuity salesman is using John’s own money to give back to John to pay taxes when due. In short it is at best “deceptive advertising” and at worst a “hoax”. As is usual, when it appears to be too good to be true, it is too good to be true.TheBadger2002-03-09 08:24, By: TheBadger, IP: [127.0.0.1]
L2: RE: 72T Tax FreeHi badger, I was the guy who posted the original question. After reading gfw’s reply I was sure there was no such thing as this tax free dream this guy was selling, so I contacted him as well(he’s probably getting more attention then usual). He told me that he was selling a bonus annuity from American Skandia that gave a 5% upfront bonus on contributions. In you $1,000,000 scenerio this would give the client a $50,000 bonus, hence the approximate two years of taxes. How does this differ from your example, or does it? Would this bonus be attractive enough to offset the expense of the annuity, or do you feel cost still far outways the advantages offered through an annuity? Bob2002-03-12 05:57, By: Bob, IP: [127.0.0.1]

L2: RE: 72T Tax FreeI’m not necessarily for or against annuities; however there are a few questions that you should ask. Remember, that most annuities pay the agent a commission; either up front or over the life of the contract. Commissions are built into the expenses on the contract.Questions: Variable annuities invest much like mutual funds how many mutual funds are paying a 5% bonus? Where is the 5% bonus coming from? Are there any restrictions on receiving the bonus? What are the annual management fees? Are there any monthly administration charges? Are there any other fees like mortality charges? How much are the surrender charges and how long do they last? How much can you withdraw annually without incurring a surrender charge and will it be enough to fund the payment? What are the real advantages of using a tax-deferred annuity to fund an already tax-deferred plan?Once you get the answers, then you’ll be able to make an informed decision. Just my thoughts!2002-03-12 07:09, By: Gfw, IP: [127.0.0.1]

L2: RE: 72T Tax FreeHello Bob:I agree with Gfw. There ain’t no such thing as a free lunch; particularly from an insurance company.I would get the details from this guy focusing on the annual pay out from his insurance company of choice. Then I would hop over to SunAmerica & Northwestern Mutual — two life companies noted for reasonable to good annuity rates & get comparative quotes.I am always willing to be amazed; however, I suspect the annual payouts from the later two companies will be materially greater & will give you some insight as to where the $50k is really coming from.TheBadger 2002-03-12 09:54, By: TheBadger, IP: [127.0.0.1]