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. There are very specific rules for these calculations, but the important things to know are that:
* 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.
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.
* The fixed annuitization method (Revenue Ruling 2002-62 section 2.01[c]).
There are three primary methods used to determine substantially equal periodic payments: the required minimum distribution method; the amortization method; and the annuitization method. Other methods may be available, but you would need a private letter ruling from the IRS.
(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.
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.
Mike's 2007 IRA Distribution [A / (B x C)] $79,340 Fixed Annuitization Method
* 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).
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).