SEPP with annuity to fund income stream

L1: SEPP with annuity to fund income streamThere doesn”t seem to be any clear guidance on my issue. This is as follows: I have an IRA with x balance. I calculate mySEPP, y. Can I fund my income stream with a part of my account balance, x, to buy an immediate annuity to fund y?
There are some who say that as soon as you go Mode E(less than life expectancy)on the annuity payout, that is a deal killer and your SEPP is invalid.
Others say, I calculated my SEPP on balance x, how I fund the payout, y is up to me.
Looking for opinions from the group.
Thanks in advance,
Eric B.2006-04-27 15:47, By: ericbr, IP: [12.40.180.18]

L2: SEPP with annuity to fund income streamI haven”t seen any PLRs that actually address the subject. If you try to fund the SEPP payments only using an immedate annuity, you may have problems with the assumptions, etc.
However, if you establish a SEPP based on the proper assumptions, the underlying SEPP/IRA assets can be any investment that can normally be held by an IRA.
For example, if you were age 50 and you were establishing a SEPP that would end in 10 years, there should be no problem allocating a portion of the SEPP assets to the purchase on a 10 year period certain annuity that provided for all (or a portion) of the SEPP payments.
If I were doing it, I would have the IRA receive the annuity payments (just like any inveastment gain)and then make the SEPP distributions in the normal fashion. Just make sure that the IRA agreement allows for the purchase and holding of an immediate annuity.
Just my thoughts :~}
2006-04-27 16:02, By: Gfw, IP: [172.16.1.74]

L2: SEPP with annuity to fund income streamGood morning Eric:
I think you are receiving guidance for two separate issues: 1) SEPP and 2) using a non-qualified, ImmediateAnnuity for income. Like Gfw said, assume your age is 50 and you need income to run for 10 years. If you have an IRA then use 72(t) rules to avoid the penalty. If you havenon-qualified funds and buy an immediate annuity, then you have to base distributions on life expectancy to avoid the penalty. But if you have non-qualified funds and use 72(q) rules to avoid the penalty, then you can set up for 10 years to satisfy the age 59 1/2 rule. Like GFW said, this last method is tricky, and it”sprobablynot your best option.
Give us a little more information about your situation, especially what kind of money you have; IRA or Non-qual.
Jim2006-04-28 08:01, By: Jim, IP: [70.184.1.35]

L2: SEPP with annuity to fund income streamOoops!
OK. I see that you have an IRA so those are the rules you need to follow for a 72(t). But I think the information you were receiving about the immediate annuity less than life expectancy violating 72(t) was based on the informant thinking about the Non-qualified situation.
Jim2006-04-28 08:04, By: Jim, IP: [70.184.1.35]

L2: SEPP with annuity to fund income streamJim,
Maybe I wasn”t clear. You use an IRA annuity to fund the payout.2006-04-28 08:05, By: ericbr, IP: [12.40.180.18]

L2: SEPP with annuity to fund income streamActually what I was referring to would apply to a SEPP IRA where a portion of the assets allocated to the SEPP are invested (just like any other ligitimate investment) in an immediate annuity. Example:
At age 50 with 100,000 in SEPP assets the Amortization payment would be about $6,486/Year.Lets say that I find an insurance company that will give me a 10 year certain annuitywith an annual payment of $6,486 for $70,000 so I allocate $70,000 to an immediate annuity with payments made directly to the IRA. The IRA Custodian annually pays me the $6,496 and all is well. In fact I can be as risky as I want with the other $30,000 since all 10 future payments are guaranteed by the insurance company.
The situation worksif the IRA Custodial Agreementallows for the purchase of Immediate Annuities.
The same situation may not work under 72(q) since it applies to deferred annuities and not immediate annuities. Immediate annuities are exempt for the 10% penalty.2006-04-28 08:11, By: Gfw, IP: [172.16.1.74]

L2: SEPP with annuity to fund income streamGordon:
Doesn”t your last sentence …
“Immediate annuities are exempt for the 10% penalty.”
only apply to “Lifetime” life expectancy annuitizations?
Jim2006-04-28 08:27, By: Jim, IP: [70.184.1.35]

L2: SEPP with annuity to fund income streamAny non-qualified immediate annuity is exempt.The IRS defines an immediate annuity as an annuity wherethe 1st payment is made withing 365 days of the date the initial premium is paid. A rollover from a deferred to an immediate will not result in meeting the definition.

72(q)(2) SUBSECTION NOT TO APPLY TO CERTAIN DISTRIBUTIONS. –Paragraph (1) shall not apply to any distribution — 72(q)(2)(I) under an immediate annuity contract (within the meaning of section 72(u)(4)), or 2006-04-28 08:32, By: Gfw, IP: [172.16.1.74]

L2: SEPP with annuity to fund income streamEric:
Are you trying to structure this project yourself or do you have an agent trying to put it together for you? If you are working with an agent, please describe how heplans to do it. Likewise if you are DIY, please tell us your plan and what you have found that will or will not work.
GFW”s idea of using$70,000 into a SPIA to fund 10-years of distributions for a SEPP and investing the $30,000 balance is a common sense approach to problem. I have contemplated using this method for some time now myself but haven”t found a good case to use. Here are a couple of problems I have run into.
1. Annuity companies usually have both Variable Annuities and Fixed Annuities. The SPIA is a fixed annuity. But when I pose the example Gordon described, I get the same answer: they won”t consider a $70k SPIA and a $30k VA as one “$100k SEPP universe.” They consider the “one account” mentioned in Rev 2002-62 to mean one annuity account and not the SEPP Universe as one account. So basically thisapproach is a “non-starter.”
2. An IRA using a brokerage account platform (one account number) should be able to purchase both a SPIA and a VA, or whatever else “growth” investment you want, to make up the $100k amount. If this works then it should function as Gordon described with the SPIA funding into the brokerage IRA and then distributions coming out of the one account. The problem is you must let the account “purchase” the SPIA and VA rather than trying to transfer these assets into the account, unless you find a brokerage custodian that”s more friendly than I have found.
Jim2006-05-01 14:57, By: Jim, IP: [70.184.1.35]

L2: SEPP with annuity to fund income streamThe usual problem with insurance companies is that they typically don”t use a custodial agreement to cover their annuities, but rather a rider that is attached to the actual annuity contract. The use of Custodial Agreements will typically be found in smaller companies who try to simplify future (state filings, new products, etc)mainenance. A self-directed IRA from a brokerage company would also work. 2006-05-01 15:18, By: Gfw, IP: [172.16.1.72]

L2: SEPP with annuity to fund income streamGordon:
Thanks for clarifying the “IRA rider” issue. That explains why IRA contracts are about 3-times thicker than NQ contracts.
I have a question into my B/D about the brokerage IRA buying the SPIA and VA. The person with the knowledge is out for the day so I”ll let you know what I find out. If the brokerageplatform can hold these contracts “in the account” then it should be quite simple to set up.
The annuity companies I use are not “small” but I can see them taking the simple way out.
Jim2006-05-01 15:47, By: Jim, IP: [70.184.1.35]

L2: SEPP with annuity to fund income streamgfw is correct–I have done exactly as he describes several times over the last few years-problem is finding an IRA Custodian who will custodialize an immediate annuity and any other investment vehicle you want to use for the balance of the IRA funds not used to fund the imm. annuity. Fortunately, I found such a custodian in 1996 and they will custodialize anything authorized by statute.I am not sure if I can mention their name here as it would be promoting a particular business. If web master tells me it”s ok, will be happy to post name or to post my phone so anyone interested can call and get info on custodian. Let me know –John2006-05-02 10:18, By: john, IP: [24.182.94.91]

L2: SEPP with annuity to fund income streamIf the custodian info needs to be kept confidential then you might send an e-mail directly to GFW (webmaster) and ask him to forward to me and any others who are interested. I would like to get the info.
Jim2006-05-02 10:31, By: Jim, IP: [70.184.1.35]

L2: SEPP with annuity to fund income streamLet”s not publish any Company names – thanks.2006-05-02 10:34, By: Gfw, IP: [172.16.1.72]

L2: SEPP with annuity to fund income streamgfw- Be happy to send you info on custodian for you to forwardOR you can give my email to those interested and they can email meOR you can give me , with their permission, the email addresses of those who want the info and I”ll be happy to send it to them. Let me know here how you want to handle it-John2006-05-02 15:30, By: john, IP: [24.182.94.91]