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 ?
Briefly, the three methods are known as the (a) required minimum distribution (RMD) method, (b) amortization method, and (c) annuitization method.
The amortization and annuitization methods will generate a level payout, and it will be higher than a payout under the RMD method;
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.
There are three primary methods used to determine substantially equal periodic payments: the required minimum distribution method; the amortization method; and the annuitization method.
3) Fixed annuitization method is calculated using a mortality table provided by the IRS and an interest rate that is not more than 120 percent of the federal midterm rate.
The annuitization method provides the largest benefit to Harvey.
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.
Under the fixed annuitization method, the annual payment for each year is calculated by dividing the account balance by an annuity factor that is the present value of an annuity of $1 per year beginning at the taxpayer's age and continuing for the life of the taxpayer (or the joint lives of the individual and beneficiary).
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.