Insured 72T

You are here:
< Back

L1: Insured 72TIs there such an animal offered that wil insure the money you take from a 72T will be equal to or greater than the principal your started with? We were led to believe this when my wife started hers 2 years ago, we even paid an extra % point to Hartford. We got a call this week to come and discuss her SEPP. Seems they want her to lower the amount she is taking out, it was also pointed out that our original expectatin was not exactly as “we saw it”. Was told that the insured portion was lower and if at theend of the 72T we would oly be guaranteed a certain percentage…and even less if we did not stay with Hartford. Right now we are totally dumbfounded, we are not destitute but when you are told to cut your money by almost 20K a year , plus all the other “new News” we are really po’d. Any help or direction would be appreciated.2009-04-23 15:37, By: BillS, IP: []
L2: Insured 72TWith all the bells and whistles attached to VAs in recent years, anything is possible, but there is also typically trade offs that can be very costly. Whether you are dealing with a communication breakdown or misrepresentation is difficult to determine in a forum such as this. However, the only way that the 72t plan can continue to comply with IRS Regs and still reduce a prior fixed distribution is to make the one time switch to the RMD method. That typically reduces the distribution substantially and even more so if the sub accounts in the annuity have lost value, which is highly likely here. Hopefully, these people understand what will bust the 72t plan, and can come up with a solution that will avoid a surrender charge. Such a charge could be almost as bad as a busted SEPP.2009-04-24 02:24, By: Alan S., IP: []

L2: Insured 72TGood morning Bill:
I cannot speak to the Hartford product specificallysince I do not use them, but it sounds like you have purchased a “Living Benefit Rider” known as a “Guaranteed Minimum Withdrawal Benefit” (GMWB). Generally speaking, this rider guarantees to return your original premium, called the “Protected Base,”over a set period of years, using a specific, annualwithdrawal percentage.
For example, if you deposit $100,000 at age60 and begin withdrawals immediately, you may be able to withdraw 7% or $7,000 per year for 14.2 years, or maybe for your lifetime, even if the actual value of your contract reduces to zero. In effect you have two accounts within the VA contract; the actual contract value which is based on changes in the sub-accounts, and the “Protected Base” account upon which your 7% distribution rate is based. So if you’re drawing out $7,000 per year and the market tanks at a constant 10% per year, you’ll run out of actual dollars somewhere between 8 and 9 years, but the insurance company continues to pay you $7,000 per year until the end of 14.2 years or life, whichever your contract specifies. When you meet with your advisor you need to have them clarify the specific details of your contract and the rider you have. Most riders charge based on the “Protected Base” amount but some base it on the actual “Contract Value.” Since you were younger than 59 1/2 when you started distributions, then you had to incorporate the rules of 72(t), which are TOTALLY SEPARATE FROM THE RULES OF THEGMWB RIDER!
Like Alan said, under 72(t) the only way you can reduce your payments is to switch from your original distribution schedule to the RMD method. This will require recalculating each year’s distribution amount based on the 12-31-CYXX value, and will vary from year to year. Once you satisfy the 5-year rule, then you may make changes to your distribution plan because the 72(t) requirements will be satisfied.
If you decide to pack-up and leave Hartford, the benefits you have with their contract along with the GMWB rider (assuming that I have the correct rider) will be lost since only the actual contract value can be transferred. Check the terms of the penalty for surrendering the contract. Depending on the contract you may have anything from zero to 7 years or longer to be subject to surrender charges, which are called Contingent Deferred Sales Charges (CDSC). I assume you have a “young” contract so the CDSC may be significant.
Good luck and I hope this helps.
Jim2009-04-24 14:48, By: Jim, IP: []