Effect of funding fixed annuity with 401(k) balanc

L1: Effect of funding fixed annuity with 401(k) balancI am 50 and have accepted a voluntary early retirement from my company, effective March 1. Among the many options I have for generating income, one financial planner has suggested using the entire 401(k) balance to fund a fixed annuity to provide a base income. (Other investments will be used to handle inflation adjustments.) The planner points out that a true annuity is essentially lifetime SEPPs so there should be no 72(t) early withdrawal issues.Is this approach permissable under the IRC? Any gotchas I need to be aware of?2002-03-23 09:44, By: Owen, IP: [127.0.0.1]
L2: RE: Effect of funding fixed annuity with 401(k) baYour financial planner is correct; an immediate fixed annuity is a perfectly acceptable investment for a 401k/rollover IRA & yes, the distributions would be exempt from the 10% surtax.However, I always want to ask the question, is an immediate annuity the right answer for my objectives? maybe yes, maybe no. As an example, if you like the structure and safety of the annuity, you can build your own annuity simply by buying a 30 year ladder of treasury zeros; potentially at less cost than the insurance company annuity product; or simply build a combined high-grade / government bond portfolio that makes monthly/quarterly distributions and retains the principal intact.I would suggest that you run these numbers and see how they come out.TheBadger2002-03-23 09:55, By: TheBadger, IP: [127.0.0.1]

L2: RE: Effect of funding fixed annuity with 401(k) baIt sounds like the “financial planner” is suggesting that you convert your 401(k) balance to a monthly income under a fixed annuity with benefits payable for life – if this sounds about right, I suggest that you find a different planner.When you buy an annuity, you are trading the cash for the income you’ll have the income but the cash is forever out of your control. At age 50 I really think that you are much too you young to turn control of the 401(k) asset in exchange for an income that you can’t outlive!Talk to your accountant (or contact someone knowledgeable) and set up a SEPP plan. Control your own future. If you want a conservative base, use government bonds or a bond fund, then use some less conservative investments to hedge inflation.2002-03-23 09:58, By: Gfw, IP: [127.0.0.1]

L2: RE: Effect of funding fixed annuity with 401(k) baThanks for the prompt replies.RE: Find a different planner … In fairness to the planner, he prepared two approaches: one with a pure SEPP and one with an annuity. He was not pushing either, leaving the decision to me. He did suggest the annuity is POTENTIALLY less work and lower risk (including risk of not meeting IRS scrutiny). In my case (no heirs), an assured income stream is more important than size of estate so, at first blush, the annuity appeared attractive.That said, I now have more to research and think about. I appreciate the heads up!2002-03-24 22:55, By: Owen, IP: [127.0.0.1]