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

* The fixed annuitization method (Revenue Ruling 2002-62 section 2.01[c]).

Planning 10 avoid the premature distribution penalty: the benefits and Disadvantages of IRC section 72(t)

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. There are no restrictions on the IRA owner's choice of methods.

Substantially equal periodic payments from an IRA

* Fixed annuitization method. Participants determine their annual payment by dividing the account balance by an annuity factor for the present value of $1 per year (or per month if monthly payments are made), assuming a reasonable interest rate at the time the payments begin and a time period equal to their life expectancy at their age in the first distribution year (using a reasonable mortality table).

Withdraw without penalty: do your clients rate an exemption from the penalty for early withdrawal of retirement funds?

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).

EARLY WITHDRAWAL

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