I want to purchase a five-year period certain single premium immediate annuity (SPIA) with my IRA account. I'm 53. Will the 10% penalty apply?

By Denise Appleby AAA
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. Does it make sense to convert a Traditional IRA to a Roth when the market’s down?

    If your modified adjusted gross income (MAGI) is $100,000 or less and you are not married filing separately, you may initiate ...
  2. Can I roll a Traditional IRA into a 529 college account for my grandchild?

    A 529 plan, also known as a "qualified tuition program", is an investment vehicle that allows individuals to save for education ...
  3. Can I still set up an SEP if one of my employees refuses to participate?

    You can establish the SEP IRA, even if the employee refuses to participant. However, you would need to establish an IRA for ...
  4. I want to close my IRA account. What percentage will I lose to tax?

    You can move the amount by means of a trustee-to-trustee transfer to another IRA, or roll over the amount to your 401(k). ...
RELATED TERMS
  1. Gold IRA

    Definition of Gold IRA
  2. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  3. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  4. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  5. Peri-Retirement

    A term for the period of time leading up to actual retirement. ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
comments powered by Disqus
Related Articles
  1. I Was Intimidated By Investing, But ...
    Investing Basics

    I Was Intimidated By Investing, But ...

  2. Impact Of Continuing To Work In Retirement ...
    Retirement

    Impact Of Continuing To Work In Retirement ...

  3. Independent 401(K): A Top Retirement ...
    Retirement

    Independent 401(K): A Top Retirement ...

  4. After-Tax Balance Rules For Retirement ...
    Taxes

    After-Tax Balance Rules For Retirement ...

  5. Guide To 401(k) And IRA Rollovers
    Retirement

    Guide To 401(k) And IRA Rollovers

Trading Center