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. Should I purchase a master limited partnership (MLP) in my retirement account?

    Learn why investors may have to pay taxes on dividends from master limited partnerships, or MLPs, held in individual retirement ...
  2. What are the tax implications of owning a master limited partnership (MLP)?

    Learn about the tax benefits of owning units in a master limited partnership, and understand how distributions are treated ...
  3. How should I invest the money I keep on my IRA?

    For individuals who are just starting to save, certificates of deposit can be a good place to start, but the interest rates ...
  4. Why choosing the right investment adviser is crucial for your portfolio's health

    Absolutely! Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial ...
RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Contingent Annuitant

    Someone designated by an annuitant to receive the annuitant’s ...
  3. Living and Death Benefit Riders

    Living and death benefit riders are a descriptive class of contractual ...
  4. Annuity

    A financial product that pays out a fixed stream of payments ...
  5. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  6. Next Generation Fixed Income (NGFI) Manager

    A Next Generation Fixed Income (NGFI) manager is a fixed income ...

You May Also Like

Related Articles
  1. Retirement

    Top 10 Stocks for Retirement Portfolios

  2. Trading Strategies

    Top 7 Roth IRA Stocks for 2015

  3. Professionals

    Are Longevity Annuities in 401(k)s a ...

  4. Professionals

    Why Retirement Advice Is Better But ...

  5. Professionals

    Coming Soon: Private Equity In 401(k) ...

Trading Center