non qualified annuities
L1: non qualified annuitiesMy wife has a non qualified annuity with Western United Life Ass.company. She started taking distributions in Sept 07 on a monthly basis $3000.00. We were informed that this would avoid the 10% penalty as is was substantially equal periodic payments. WULA company sent usform 1099R which was coded 1. We called and they explained that the distributions exceeded the maximum allowed by 72t rules (120% of fed mid term rate). At this point we decided that rather than bust the original sepp plan we would include a second non qualified annuity from Jackson National Life Ins. Company into the sepp universe, bringing the total of the sepp uni. to over 700K. We ran calculators from this web site and came up with 4._ toattain an annual distribution of 36K, 3K per month. Is this acceptable? Now the same person that told her the original distributions would avoid the 10% penalty is advising her to move her money out of WULA and into another annuity at Jackson, is this acceptable? Any help would be appeciated.2008-08-25 17:58, By: s60r, IP: [220.127.116.11]
L2: non qualified annuities>>At this point we decided that rather than bust the original sepp planYou already busted the SEPP. Youcould start a new SEPP with the new annuity, but youmay not add a second annuity and call it your SEPP Universe.
>>Now the same person that told her the original distributions would avoid the 10% penalty is advising her to move her money out of WULA and into another annuity at Jackson, is this acceptableTo me it appears that you have an agent that is making good commissions at your expense. At this point, you would be best off talking to a knowledgeable CPA or advisor. Changing companies isn”t going to solve your problem. Maybe the agent who gave you the original advice would also agree to pay any IRS penalties and interest.2008-08-25 18:49, By: Gfw, IP: [18.104.22.168]
L2: non qualified annuitiesJust curious – when was the second annuity created? Was it in existence in Sept 07 and with no contributions or distributions taken from it after August, 2007?
The odds of having a second such annuity with the exact account balance needed to correct an error in the original SEPP seems very high, even given the possibility of reducing the original intended interest rate below the 120 mid term.2008-08-25 19:56, By: Alan S., IP: [22.214.171.124]
L2: non qualified annuitiesOK. Lets say a person wants to start a new sepp and this person has 2 NQA”s that each have an account balance of$355K for a total of $710K. One annuity is with company A and the other is with company B. Can this person include both annuities in asepp universe and take distributionsbased on $710Kfrom company A only.2008-08-25 20:12, By: s60r, IP: [126.96.36.199]
L2: non qualified annuitiesAlan, Both annuities were created back in the mid to late90”s.2008-08-25 20:15, By: s60r, IP: [188.8.131.52]
L2: non qualified annuitiesAlan, No contributions or distributions since inception.2008-08-25 20:21, By: s60r, IP: [184.108.40.206]
L2: non qualified annuitiesAlan… I think I know where you are coming from and in theory, yes.
However, trying to add another annuity after the fact is really wishful thinking. As you suggest, at the initial point the initial calculations would have to have been based on: 1)the annuity cash value of bothcontracts as of the same date; 2) the attained age in2007; and3) the 120% rate that was equal to or lower than the 120% rateforeither of the 2 months immediatelypreceding the date of the first distribution.
In addition, since two insurance companies would have been included, something in writing defining what assumptions were being used, etc.would also have been nice. This also assumes that there was no paperwork filed that shjowed only one annuity was being used. The company that I am associated with always gets the initial definition is writing. Whiile we don”t monitor the SEPP, at least we have something in our files usually sent by the agent and signed by theclient that shows the assumptions used.
But the bottom line is that he can really do anything he wants or chooses to do. I was merely explaining the right way.
2008-08-26 03:52, By: Gfw, IP: [220.127.116.11]
L2: non qualified annuitiesActually, there is no use contemplating reconstruction of the dynamics of the plan unless two NQ annuities can actually be combined under one SEPP. Notice 2004-15 in applying many of the prior 72t rulings to 72q seems to lean toward consistency in SEPP plan dynamics between the two, however the taxation of annuity distributions will always be separate, unlike traditional IRAs where basis is equally apportioned. Lacking anything specific, I think two NQ annuities CAN be combined in a single SEPP, relying on the intent of 2004-15.
Gordon, do you agree?2008-08-26 14:23, By: Alan S., IP: [18.104.22.168]
L2: non qualified annuitiesI do agree that they can be combined just like a universe of tax-qualified plans can be combined.
The combinations that I have seen typically involve distributions that are all taken for one annuity and then from the other and the total assests used for calculations disclosed to both insuance companies.This is the complex way.
If I were using two different annuities and wanted the same results as a combination, I would probably setuponeplan for each annuity – even if they were purely mirrors – the logic… easier to justify and explain in a audit.
2008-08-26 14:39, By: Gfw, IP: [22.214.171.124]
L2: non qualified annuitiesGood morning Gordon and Alan. (It seems to be working OK now.)
Let me add one twist to combining annuities into one SEPP Universe. When I have discussed this concept with the annuity companiesI use, their position is that each annuity stands alone since each has a unique account number. They will run a SEPP Plan on each annuity separately, but they will not combine the values of two or more annuities into one SEPP Universe. And since the annuity company is doing the reporting to the IRS, then you pretty much are stuck with running on their rules.
My suggestion is for you to find out what “ground rules” each of your annuity companies uses for SEPP Plans, then you will have a better idea in which direction you should go. I do agree with Gordon that it sounds like you have a “commission hungry agent” who doesn”t know what he”s doing when it comes to 72(t) / 72(q). You do need help from someone that is really knowledgeable about this subject to determine the best way to get you out of this mess. Busting the plan might be the best option but you need help to determine what”s best.
Jim2008-08-28 06:39, By: Jim, IP: [126.96.36.199]