Immediate Annuity from 401k B4 age 59.5

L1: Immediate Annuity from 401k B4 age 59.5If I retire @ 57 and then take a portion of my 401k and buy an immediate annuity for life does that result in the 10% tax penalty? Does the annuity have to be the amount calculated as “substantially equal payments”? Would be less than half the 401k which is all I’d need with pension and savings I have in place.
2005-12-12 12:05, By: Skeeter, IP: [209.99.19.8]

L2: Immediate Annuity from 401k B4 age 59.5If you retire and seperate from service after age 55, there won”t be any 10% penalty tax if the funds are distributed from the 401(k) or the 401(k) purchases the annuity for you.
The real question is why you would want to purchase an immediate annuity at age 57 at a time when interest rates are low and you probably have 25 years to live. Surely, you can generate an income from the assets that would be close to the annuity – if yes, then why give up all future control of the funds?
Just my thoughts – I”m not much of a fan of life only immediate annuities – especially below the age of about 80. 2005-12-12 12:19, By: Gfw, IP: [172.16.1.72]

L2: Immediate Annuity from 401k B4 age 59.5Hi Skeeter:
If you have a 401(k) that is large enough to split apart as you indicate, then worrying about the 10% penalty associated with early distributions from an IRA is the least of your worries. I agree w/ GFW that you should use the K-plan for pre-59 1/2 distributions since there is no 10% penalty if you retire at or after your age 55 and take distributions from the K-plan. Then rollover a portion of the K-plan to one or more IRAs for future distributions after you escape the IRS penalty phase of age 59 1/2. However, don”t fall into the “cheap fees” trap of leaving all of your funds in the K-plan forever. There are more positive reasons for the IRA Rollover of these funds than the benefit of low fees.
If you are considering using annuities for your IRA then you need to do some research. I like annuities for IRAs because of the living benefits developed over the last few years which make using immediate annuities pretty much obsolete. The real problem with using immediate annuities or “annuitizing” a deferred annuity is loss of control of the money. But with the living benefits of today you retain control of your money. Mutual funds, ETF”s and privately managed accounts are other options for your IRAs that you should consider. Do some extensive research before making your decision.
Hope this helps.
Jim2005-12-12 13:23, By: Jim, IP: [70.184.1.35]

L2: Immediate Annuity from 401k B4 age 59.5I generally agree with the above, but for purposes of exploring all the options with the 401k plan, you should first determine what they are. Does the plan itself have an annuity option similar to what a DB plan must offer? Some of them do. If you separate, what are your distribution options? Does the plan allow partial distributions that you could take penalty free at least until age 59.5 or does it require a lump sum distribution after separation?
An SPIA purchased by the plan could have better mortality assumptions than an individually purchased IRA annuity.Distributions would meet the substantially equal exception for penalty waiver whether coming from the plan or purchased separately after IRA rollover. But loss of control at a young ageand low interest rates do present a valid reason for avoiding such a strategy, even though it should work from a tax code standpoint. 2005-12-12 22:55, By: Alan S., IP: [24.116.165.157]