Annuitization Method

Annuitization Method

A way to receive distributions from an annuity where the annuitant is guaranteed to receive a certain amount in income each month for the remainder of his/her life. This carries lower risk than a systematic withdrawal plan, where the annuitant receives income until his/her account runs out. However, should the annuitant using the annuitization method die prematurely, payments may stop and the annuitant may lose the remainder of his/her annuity.
References in periodicals archive ?
In other words, you can pick and choose which accounts to add together for purposes of selecting which of the three permitted distribution methods to use: amortization method, annuitization method, or life expectancy fractional method using either the Uniform Lifetime Table or the Single Life Table.
Keep in mind that the SEPP using either the amortization method or the annuitization method is a level amount that must be paid for at least five years or until age 5972, whichever comes later.
Three safe-harbor methods are available for calculating the annual withdrawal amount: (1) the required minimum distribution method, (2) the fixed amortization method, and (3)the fixed annuitization method.
The three methods approved by the IRS include (1) the required minimum distribution method, (2) the fixed amortization method, and (3) the fixed annuitization method.
Fixed Annuitization Method The fixed annuitization method also results in a level annual payment throughout the series.
The annuitization method is affected only by the interest rate because it is restricted to a specific life expectancy table.
The fixed annuitization method does not provide a choice among tables.
If the fixed amortization method or the fixed annuitization method is used, the IRA owner must select an interest rate.
Because the annuitization method requires the use of the mortality table in Rev.
Revenue ruling 2002-62 One-time change from the fixed amortization method or the fixed annuitization method to the required minimum distribution method (all of which are IRS sanctioned methods in notice 89-25); change made to avoid premature depletion of retirement account assets that have declined in value.
Using the life expectancy method would provide $378 per month (not enough), while using the annuitization method would provide $1,125 per month (too much).
In particular, the IRS has provided new guidance on what account balance may be used in performing 72(t) calculations based on Required Minimum Distribution rules, and on what interest rates may be used in the amortization and annuitization methods.