How to Structure for SEPPs

L1: How to Structure for SEPPsI want to set up SEPPs. I currently have about $728K total in qualified money. $107K ofthis is in a traditional IRA, $445K in one ofmy former employer’s tax sheltered annuity (TSA) plan, and $176K in a supplemental plan at the same employer.
I want about $2,300 per month from SEPPs. I have discovered that I can buy a single premium immediate annuity from the same mutual fund house that has my IRA. For a one-time premium of the $445K in my TSA plan, the annuity would pay me $2,300 per month for the rest of my life. (I will be 51 in November.)
Questions: How can I structure, rollover, rearrange, and/or combine these three accounts so that I can buy the annuity and have the lifetime monthly payments satisfy all of the IRS’s requirements for taking SEPPs under rule 72(t)? With $728K of qualified money, does $2,300 per month fall within the 80% – 120% of the applicable mid-term interest rate range? According to the calculator on the mutual fund house’s Web site, it does, but I would like confirmation from the experts here.
I just found this great site. In fact, a customer service rep at the IRS gave me the URL over the phone. I want to be absolutely positive that I comply with all of the IRS regs before I set up my SEPP program. Thank you for providing this service!2004-09-14 13:53, By: Dennis, IP: [65.38.226.8]

L2: How to Structure for SEPPsWhile I’m not trying to give you investment or tax advice, think really hard about buying a life annuity at the very young’ age of 51. Interest rates are at historical lows there are only two factors (assuming no sales load) in an immediate annuity: mortality and interest – once purchased the assumptions won’t change.
Also remember that if you buy the annuity at age 51 and die a month later, all benefits typically stopand the issuing insurance company typically owns the cash, not your family.
You have a variety of option including sub-dividing the accounts to produce the income that you desire. Allocating 446,568 to an account assuming 4.94% interest (120% AFR) would produce about $2,300 month of income and you still control the assets. Rates are decreasing, and starting next month will merely require allocating a few more dollars to the plan but you will still own the dollars.
Suggest you start by browsing the FAQ, maybe even buy Bill’s book or get professional advice (a 2nd opinion) regarding the annuity. 2004-09-14 14:22, By: Gfw, IP: [172.16.1.73]

L2: How to Structure for SEPPsHow, in today’s environment, could I invest my money to achieve a 4.94% rate of return with little or no risk? I think the stock and bond markets are overvalued and headed for big declines in the not too distant future.
One thing I like about the particular annuity that I am considering is that the payout is guaranteed for life. The insurance company that sells it has the highest ratings given by S & P, Moody’s, etc.
In addition, when I am 55 years of age four years from now, I can begin to receive about $1200 per month from my former employer’s defined benefit plan for the rest of my life, so that would be like a big “salary increase” for me four years from now. Then (if Congress doesn’t change the rules before then), I can begin to receive Social Security at age 62 to the tune of about $1,350 per month the first year, so this would be like another “salary increase.” These two step-ups in income should go along way toward keeping me up with inflation.
Does all of this additional information change your view regarding the single premium immediate annuity?
Thanks!2004-09-14 19:25, By: Dennis, IP: [65.38.226.9]

L2: How to Structure for SEPPsNot really, but the choice is yours – you asked for comments and I merely gave you mine.
Your life expectancy at age 51 is about 33+ years. If you are willing to lock up your funds at today’s rates for 30+ years then the annuitymay be a good alternative for you.
2004-09-14 19:43, By: Gfw, IP: [172.16.1.73]

L2: How to Structure for SEPPsAny ideas on where to invest money to earn a 4.94% return in today’s environment without assuming a lot of risk?2004-09-15 08:47, By: Dennis, IP: [65.38.226.9]

L2: How to Structure for SEPPsHaven’t really looked. But, remember that the 4.94% rate is an index used for determining the payment under a SEPP – it has nothing to do with the actual rate of return earned by the underliging investments.
Over the next nine years rates will probably go up and down. But as recently as June, a 10-Year Treasury as at 4.89% – Not that far from the 4.94%2004-09-15 09:03, By: Gfw, IP: [172.16.7.101]

L2: How to Structure for SEPPsHi Dennis:
My suggestion is to look at other insurance companies besides the one with your current TSA. I suspect they are suggesting annuitizing your current contract, which is probably quite old given the amount of money you have and your age. Ther have been some great options added to newer contracts which will give you some guarantees for a long time but let you keep more control of your money.
I’ll let TheBadger comment on this next item to get the exact IRS wording: If you take certain payout options from annuities, you don’t have to worry about the 10% early withdrawal penalty.
Check out other options for your investments to achieve your goals. Also, you don’t have to be stuck with only the highest rated company to have safety those ratings reflect.
Jim2004-09-15 09:57, By: Jim, IP: [68.1.157.228]

L2: How to Structure for SEPPsDennis,
For starters, If you really are a “conservative long-term investor”; and you are satisfied with a 4.94% annual return… I can tell you there are FDIC insured investments (CDs) available at a 5.50% return that “probably will never be called.
I know that Jim is “chompin at the bit” to reply to this post; however, there are some people who believe in conservative investment strategies.
CDM2004-09-15 13:38, By: CDM, IP: [206.149.201.133]

L2: How to Structure for SEPPsDennis:
I don’t know what CDM is referring too about me ‘chomping at the bit’ to reply. But since I’m here, let me say one last thing.
There are many ways to solve your problem, but you should look for a solution that fits three criterior (and I’m not sure that last word is spelled right): First, you should fully understand the investment strategy that you develop or someone else develops for you. Second, it should have some ‘probability-of-success’ factor that you are comfortable with. And lastly, it should be a strategy that lets you sleep at night.
Good luck.
Jim2004-09-15 15:00, By: Jim, IP: [68.1.157.228]