Is this withdrawal amount okay?
L1: Is this withdrawal amount okay?I may be buying a gmib variable annuity that allows me to withdraw 5% annualy. That 5% equates to $31,250. The reasonable interest rate for a distribution in Sept.is 2.83%. Using that interest rate my withdrawal maximum appears to be $30,304 yet the agent says the difference is minimal and withdrawing the $31,250 will be fine.
Is it fine?2010-07-13 23:12, By: Greg Knoll, IP: [126.96.36.199]
L2: Is this withdrawal amount okay?You would not use 2.83% unless you could not start the plan until September.If you can start the plan in August, and use a rate of 3.05, you canwithdraw 31,215 annually, which is slightly less than the 5% allowed and still meets 72t requirements. You can use a rate that is lower than the rate allowed, but not higher.The bigger question is whether this amount will be sufficient to cover your living costs for around 6 years givenuncertainty about those costs and about tax rates, which are headed up. If notsufficient, then other more complex planning will be needed sinceyou should not start a plan that will likely have to be busted before your modification date.2010-07-13 23:24, By: Alan S., IP: [188.8.131.52]
L2: Is this withdrawal amount okay?>>the MetLife agent says the difference is minimal and withdrawing the $31,250 will be fine.Run as fast as you can from the Met Life agent. The IRS generally allows a variance of about $0.50 on the annual distribution amount. Unless you totally misunderstood the agent, he/she has no clue as to what they are talking about.Why not offer some details as to when you plan to start, etc.2010-07-13 23:32, By: Gfw, IP: [184.108.40.206]
L3: Is this withdrawal amount okay?I just retired. I would be starting this annuity in August and the first distribution to me would be made in September. The annuity will be a direct result of a rollover of my lump sum pension and company sponsored 401k.2010-07-14 00:37, By: Greg Knoll, IP: [220.127.116.11]
L4: Is this withdrawal amount okay?More information please… What will be your age on 12/31 of this year?How much do you need annually to meed your needs?Why do you want to purchase the annuity? What benefits does it offer that would not be available in a rollover non-annuityIRA? Is there any employer stock that you own in the 401(k) that is subject to the NUA rules?Do you have other funds in addition to the $625k for emergencies?I’m sure that a few others may have a few more questions, but we can start with the above.2010-07-14 00:51, By: Gfw, IP: [18.104.22.168]
L2: Is this withdrawal amount okay?One of your replies (the one where you mentioned a life contingency annuity)seems to have disappeared. If you are purchasing a ‘real’life contingency annuity (an annuity payable for life, etc) then the annuity should be able to sand on it’s own and Met Life (the legal department, not the agent)should be able to give you something in writing about the annuity qualifying under Section 72(t). When I was actually working for a living, I used to use age 70 as a suggested minimum age to use when purchasing a life contingency annuity. Age 53 is very young and current interest rates are very low.If you are purchasing a deferred annuity and making periodic withdrawals from that annuity (this pretty much fits youroriginal description) then you should use the rules of 72(t) to create and operate your plan.All calculations should be done using the appropriate 120% Mid-Term interest rate, etc.- the variance on the calculated annual distribution and the amount that you take should be no more than 50 cents.2010-07-14 10:29, By: Gfw, IP: [22.214.171.124]
L3: Is this withdrawal amount okay?Maybe I’ve missed something somewhere. Correct me if I am wrong.I do not think that there needs to be any specific relationship between the annuity and the SEPP 72-T figures. The only important relationship is to make sure that the CASH FLOW from the annuity to the SEPP 72-T account is sufficient, when supplemented by any other income or cash availability, such that the required ANNUAL DISTRIBUTION can be disbursed by 12/31 of each year. A similar situation would exist if you invested in CDs, and could cause a problem if there was not adequate CASH to be used for the distribution because the CD matured after 12/31.2010-07-14 12:13, By: dlzallestaxes, IP: [126.96.36.199]
L4: Is this withdrawal amount okay?You are absolutely right if the withdrawal from the annuity is paid into the IRA account (not to the owner)and the SEPP Distributions then occur from the IRA account. However, the post seemed to indicate that the withdrawals were the SEPP distributions.2010-07-14 14:24, By: Gfw, IP: [188.8.131.52]
L5: Is this withdrawal amount okay?That was the point that I was trying to make to him, and others, that the interest rates of the annuity is immaterial relative to the SEPP 72-T interest rate, and the annuity distributions are meaningless in regards to the IRS regulations re SEPP 72-T. No matter whether the annuity PAYMENTS are more than, or less than, therequired SEPP 72-T distributions, the annual required SPP 72-T distributions are the result of a calculation based upon the initial value of the SEPP 72-T (except under recalcualtion provisions). If the required annual distribution is higher than the annuity payment, then you have to use other cash in the SEPP 72-T IRA account top supplement the annuity payment. On the other hand, if the annuity payment is greater than the required SEPP 72-T required annual distribution, then you must keep any excess in the SEPP 72_T. You can never distribute the annuity payment as satisfying the SEPP 72-T required distributions, unless there is a lucky coincidence, or unbelievable planning. Further, make sure that the annuity payment(s) arrive into the SEPP 72_T in time to clear, and be vailable for the SEPP 72-T distribution.2010-07-15 03:20, By: dlzallestaxes, IP: [184.108.40.206]
L6: Is this withdrawal amount okay?1)Starting the withdrawals in Sept. so as of now the reasonable interest rate is 2.83%
2)Based on that interest rate, and my age of 53, the withdrawal amount paid “to me” is $30,304
when calculated with a 72T calculator (4.85%).
3)If I went with the annuity companies allowance of a 5% withdrawal I would receive an annual withdrawal of $31,250.
I know it’s a minor difference in money but I just want to make sure I get this done correctly.I guess the only “safe” withdrawal amount would be the one based on the reasonable interest rate.2010-07-17 00:12, By: Greg Knoll, IP: [220.127.116.11]
L7: Is this withdrawal amount okay?If you set up a SEPP 72-T, then the only ALLOWED annual distribution amount is the $30,304/year based upon the interest rate applicable for Sept.As a result, you will have $ 946 accumulating each year in your SEPP 72-T, which is fine. It is better than having an annuity that pays less than the amount that you are required to distribute under the SEPP 72-T regulations.By the way, you could invest that excess cash each year, or just let it accumulate in a money market account within your SEPP 72-T.2010-07-17 00:27, By: dlzallestaxes, IP: [18.104.22.168]
L7: Is this withdrawal amount okay?Greg… as I stated before, 50 cents in considered minor. $946 is merely a busted plan.2010-07-17 01:36, By: Gfw, IP: [22.214.171.124]
L8: Is this withdrawal amount okay?To clarify GFW’s comment, I would have worded it differently.A $ .50 annual difference is no problem. But your “mere $ 946” extra distribution would bust your plan RETROACTIVELY if you took more than the ANNUAL SEPP 72-T allowed amount in ANY YEAR before you reach 59 1/2.2010-07-17 03:08, By: dlzallestaxes, IP: [126.96.36.199]
L9: Is this withdrawal amount okay?So does this mean I could withdraw the $31,250, without exceeding the IRS 72t maximum, if I ask the annuity company (MetLife) to only issue $30,304 (or a lesser amount) directly to me and the remaining $946 to my existing 401k or a newly established IRA?2010-07-17 15:06, By: Greg Knoll, IP: [188.8.131.52]
L10: Is this withdrawal amount okay?No. It means that you can withdraw ONLY the amount determined with one of the three acceptable SEPP methods – based on your example, you may withdraw$30,304 – no more and no less. AnyIRA established after the inception of the SEPPwould not be part of the SEPP universe or at bestit would most probably be considered a partial transfer.Forget all about the 5% withdrawal that the MetLife agent told you about – it has absolutely nothing to do with the amount you can withdraw from your SEPP. If you want to use the annuity, do it, but create yourSEPP planbased on the SEPP rules.Your questions really imply that you shouldseek professional advice from a qualified advisor – not the MetLife agent.Making the wrong decisions when implementing a SEPP can be very expensive!2010-07-17 15:23, By: Gfw, IP: [184.108.40.206]
L11: Is this withdrawal amount okay?Ok, that clears it up. Thanks all for your input.2010-07-17 17:05, By: Greg Knoll, IP: [220.127.116.11]
L10: Is this withdrawal amount okay?Greg:The 5% withdrawal limitstated byMetLifeis the maximum you may withdrawwithout busting the GMWB rider which is added to the basic annuity contract. This has nothing to do with 72(t) withdrawal limits. If the calculatedSEPP Plan distribution amount exceeded the 5% GMWB rider limit, then you would bust the rider and create problems with the annuity contract terms and conditions.”So does this mean I could withdraw the $31,250, without exceeding the IRS 72t maximum, if I ask the annuity company (MetLife) to only issue $30,304 (or a lesser amount) directly to me and the remaining $946 to my existing 401k or a newly established IRA?”NO! The solution to comply with 72(t) is to ask MetLife to distribute less than the maximum 5% GMWB rider amount. In you example you want MetLife to send you $30,304 per year (taken annually, quarterly, semi-annually or monthly … your choice)total and leaveeverything else in the contract.Another solution is to set up a brokerage account IRAand buy the annuity WITHIN the brokerage account. By doing this your annuity is one investment choice, which could be one of many, distribute up to the 5% GMWB limit into your brokerage account IRA… $31,250 in your example … then have the IRA distribute the correct 72(t) amount … $30,304 … and the balance would just accumulate in the cash account section of the brokerage account IRA. This will not bust the 72(t).If your MetLife agent / rep does not have a relationship with a clearing firm that has a brokerage account platform, and if you want to follow my last suggestion, then you will have to find abrokerage fIrm that can provide this service. You could use either a full-service broker or an online broker. Be sure to ask the prospective broker if their platform will purchase and hold the variable annuity contract within their brokerage account IRA platform BEFORE you sign up with them.Jim2010-07-19 14:25, By: Jim, IP: [18.104.22.168]