A:

The income from a SPIA IRA is subject to the early distribution penalty unless an exception applies. As you may know, the substantially equal periodic payment (SEPP) exception is usually calculated by using one of three IRS approved safe-harbor methods. However, the IRS may allow individuals to use other methods. Potentially, this could include the scheduled income received from the SPIA. To be sure, the individual should consult with the IRS, preferably in writing, for approval to use a non safe-harbor method; his or her tax professional should also be consulted on the matter.

One means of receiving a written determination from the IRS is by applying for a private letter ruling (PLR). Individuals should bear in mind that a cost is associated with applying for a PLR. The instructions for filing for a PLR are included in Revenue Procedure 2003-4 in Internal Revenue Bulletin 2003-01.

For additional information making withdrawals from you IRA, read Taking Penalty-Free Withdrawals From You IRA, Avoiding IRS Penalties On Your IRA Assets and Retirement Plan Tax Forms You May Need To File.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. What is the maximum I can receive from my Social Security retirement benefit?

    The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, ... Read Full Answer >>
  3. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  4. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  5. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  6. Will quitting your job hurt your 401(k)?

    Quitting a job doesn't have to impact a 401(k) balance negatively. In fact, it may actually help in the long run. When leaving ... Read Full Answer >>
Related Articles
  1. Retirement

    How Much Should You Have In Your 401(k) To Retire?

    Determining how much money should be in your 401(k) when you retire depends on several variables, many of which are uncertain.
  2. Retirement

    Retiring in Thailand: The Pros & Cons

    It's a lovely land, but before relocating, get the skinny on this Southeast Asian kingdom.
  3. Investing

    How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement

    The best proactive plan of action for a stable retirement is to understand medical costs, plan ahead, invest properly, and consider supplemental insurance.
  4. Retirement

    Is Retiring in France Safe Today?

    After a series of deadly terrorist incidents, some may be asking themselves this question.
  5. Investing Basics

    The Top 4 Income Investments for Retirees in 2016

    These four investment types should mitigate risk in 2016 for retirees seeking income.
  6. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  7. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  8. Your Clients

    Tips for Making Your Nest Egg Last Longer

    If you’re trying to figure out how to make your hard-earned nest egg last, there’s one piece of advice that stands above the rest.
  9. Personal Wealth & Private Banking

    What People Hate About Financial Advisors

    Advisors need to make a living too, but doing so by cutting corners at a client's expense isn't right. Here are the top complaints against advisors.
  10. Retirement

    Warren Buffett's Investment Lessons for Retirees

    For those in retirement, Warren Buffett's clear, timeless advice on investing is worth a look.
RELATED TERMS
  1. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
  2. Nursing Home Resident Trust Fund

    An account in a nursing home that helps residents manage finances ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that ...
  5. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  6. Wealth Management

    A high-level professional service that combines financial/investment ...
Trading Center