Immediate annuities

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L1: Immediate annuitiesI retired last summer at age 57. I bought 2 immediate annuities with “substantially equal periodic payments” for the rest of my life. When I got my 1099-R’s, one was coded with a 1, and one was coded with a 2. I’m trying to get the company that coded it a 1 to change it to a 2 like the other company, but I’m not having much luck. What are my options?2011-02-07 03:57, By: JT, IP: []
L2: Immediate annuitiesWhat reason are they giving you for not coding it 2?As I understand it, an immediate annuity in a NQ contract is exempt from the penalty under the immediate annuity exception, which is a different exception than the SEPP exception, which must be used for non annuitized payments under 72q. In that respect it appears that the payout does not even have to be based on life expectancy as it does under 72q or 72t. Even though the immediate annuity exception uses the 72u definition of immediate annuity and 72u is for non natural persons, the reference to this definition is in 72q and therefore the immediate annuity should qualify even if it was not based on your life expectancy. In your situation it appears to qualify for the exception two different ways, both immediate and SEPP.Please let us know if you the company clarifies this issue for you. It does not appear likely that both companies are correct, and the immediate annuity exception would not likely fall under the same rationale that IRA custodians use when they refuse the 2 coding.2011-02-07 04:55, By: Alan S., IP: []

L3: Immediate annuitiesIf you tell us which company uses which code, we can tell you if others have had their 1099-R coded properly by the same company.2011-02-07 05:44, By: dlzallestaxes, IP: []

L2: Immediate annuitiesWhat form of payout was selected? Any payout for a period of less than your life expectancy (for example 5 year or 15 years)would not qualify under IRC Section 72(q) and if made to you before age 59.5, would be subject to the 10% penalty.Immediate annuities are subject to the same basic rules as an IRA. The only difference between an immediate annuity and a deferred annuityis that under an immediate annuity payment toyoumust begin within 12 months of the premium being paid.2011-02-07 09:38, By: Gfw, IP: []

L3: Immediate annuitiesThe company is ING. I got the broker involved that sold me the policies and he has been on the phone with ING. He said ING will not change the coding because they interpret the IRS rules differently than the other companies. He said my best bet was to file a Form 5329 and take the exemption there.2011-02-07 18:03, By: JT, IP: []

L4: Immediate annuitiesThis discussion between Michael Kitces and John Olsen illustrate the point I was trying to make, ie. a penalty exception for an immediate annuity purchase under 72qregardless of term or age, although a gray area exists if a deferred annuity is purchased and then annuitized within 12 months. A conservative interpretation would require an immediate annuity purchase from scratch for the immediate annuity penalty exception. Kitces and Olsen are noted authorities in this area: 21:39, By: Alan S., IP: []