sepp on annuity

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L1: sepp on annuityI currently have 2 annuities on 1 account and a 2nd account that will not be on sepp for emergencies. I will be starting a sepp in November but hope to start with only 1 of the annuities. I have asked to have the annuities put on different account numbers. Can I do a sepp on 1 annuity and at a later year if needed start a 2nd sepp on the other annuity and draw on both at that time? Also the annuity I plan to start with has a GMIB rider and even thou the marker value has dropped the GMIB balance I can draw from is guaranteed which is at least the starting balance. My advisor has told me this is the balance that can be used since it is guaranteed but is verifying this for me.Do you know if this is correct? Also the GMIB is 6% which I know I can’t receive the full amount but will let the balance sit in the account until sepp is complete. Thank you for your time with my questions.2008-10-26 12:43, By: janie, IP: []
L2: sepp on annuityJanie,Since you did not mention an IRA, I will assume that your annuities are non qualified. If you start a SEPP with an annuity in a separate account, you can also start another unrelated and indenpendent SEPP with a different annuity not in the same account. In this respect the rules under 72q and 72t are the same.With respect to the GMIB, these come in so many different variations, I hesitate to make a broad general statement. However, if the annuity must be annuitized to take advantage of the GMIB, then a SEPP should not be necessary because annuitization itself qualifies for the early withdrawal penalty exception. If you do not have to annuitize, then I would put the onus on the insurance company to select the proper fair market value of the account to comply with IRS requirements for an opening balance, and push them to agree to code your 1099R with the penalty exception.Annuitization vrs a SEPP will also result in lesser amounts of the distribution being taxable in the first few years, as a SEPP distribution will come first from earnings and be fully taxable.2008-10-26 15:53, By: alan+s., IP: []

L2: sepp on annuityThank you for such a quick reply. The annuities are in an IRA. Sorry I did not indicate this. From your reply, it appears the withdrawals may qualify for the early withdrawal penalty exception without having to do a 72t SEPP. If this is the case, then the 6% withdrawal amount would not have to be reduced? It also appears the insurance company should be knowledgeable of IRS rules and get this set up for me. I will be meeting today with my advisor and wanted as much information as I could get before the meeting. Thanks for helping.2008-10-27 06:02, By: janie, IP: []

L2: sepp on annuityJanie… also remember that when you annuitize an annuity, you must annuitize over your remaining life expectancy, not just for a set period of time. A SEPP can end at the later of age 59.5 or 5 years – the annuity may not have the samwe options.2008-10-27 06:48, By: gfw, IP: []

L2: sepp on annuityJanie:I have concerns about a couple of points which you need to clarify here and with your advisor during today’s meeting. First item is your opening sentence:I currently have 2 annuities on 1 account and a 2nd account that will not be on sepp for emergencies. This sounds like you may have two annuities held withing one IRA account which is on a brokerage platform which would make both annuity contracts included within your SEPP Universe. Annuities held direct with the insurance company would have individual account numbers and each would stand along, and each could have their own SEPP Plans. If held within a brokerage platform under one IRA account number … eventhough each annuity will have an individualaccount number …then both annuities would have to be used to calculate your SEPP distribution amount. Please clarify.Do your annuities have GMIB or GMWB riders? There is a big difference and you need to be very sure which you have. The Guaranteed Minimum Income Benefit (GMIB) rider requires annuitization and generally requires no withdrawals for 10-years without severe penalties. Like Alan and GFW stated,if you have and use this rider you won’t need SEPP and you will have a “lifetime” distribution system. The Guaranteed Minimum Withdrawal Benefit (GMWB) rider does NOT require annuitization and is more “friendly” for SEPP Plan withdrawals. This rider will work best with for a SEPP Plan distribution. Pleaseclarifywith your advisor exactly what you have.As to what amount you need to use in your calculations, the insurance company that issued your annuities and your financial advisor are best equipped to help answer these questions.Good luck.Jim2008-10-27 08:14, By: jim, IP: []