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Distribution Rules, Alternatives And Taxation - Annuity Options

Annuity Options

Spousal Benefits – Qualified pension plans must provide two forms of survivorship benefits for spouses.

  • Qualified Pre-Retirement Survivor Annuity (QPSA) – Once plan the participant is vested, the spouse is entitled to a pre-retirement annuity payment if the participant dies before retirement.
    • Payment would be the actuarial equivalent of 50% of the participant's vested balance as of the date of death.
  • Qualified Joint and Survivor Annuity (QJSA) – A payment from a qualified plan or 403(b) account that provides a life annuity to the participant and a survivor annuity for the spouse after the participant's death.

    QJSA rules apply to money-purchase pension plans, defined-benefit plans and target benefit plans. They can also apply to profit-sharing and 401(k) plans, but only if so elected under the plan.

    Generally, the survivor annuity must be 50 to 100% of the annuity paid to the participant.
    • Participants can waive the QJSA payment and receive a lump-sum or ad-hoc distribution instead, provided the participant's spouse consents to the waiver and the spousal waiver is witnessed by a plan representative or a notary public.
  • Life Annuity – An automatic form of payment for an unmarried participant. Monthly payments are made over the course of the participant's lifetime with payments stopping upon death. Plans may offer options as well.
  • Period-Certain Annuity – Provides annuity payments for a specified period, usually 10 to 20 years even if the participant and the spouse die before the end of the payment period. Subsequent payments would be made to a beneficiary.
  • Normally, a period-certain annuity would end at the conclusion of a specified period, but some plans allow for a life annuity with a period certain. In that case, payment is guaranteed to last for life or the period certain – whichever is longer. As a result, payment is less than for a straight life annuity.
    • For example, "Life – 10 years certain," would mean payments would be made for a minimum of 10 years.
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