Fixed Annuitization Method

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DEFINITION of 'Fixed Annuitization Method'

One of three methods by which early retirees of any age can access their retirement funds without penalty before turning 50.5. The fixed annuitization method divides the retiree's account balance by an annuity factor taken from IRS tables to determine an annual payment amount. The annuity factor is based on IRS mortality tables and an interest rate that is less than 120% of the federal mid-term rate. Once the payment amount is determined, it cannot be changed.

INVESTOPEDIA EXPLAINS 'Fixed Annuitization Method'

The two other methods for early, penalty-free retirement withdrawals are the fixed amortization method and the required minimum distribution method. Each method can result in quite different distribution amounts. The fixed annuitization method is the most complicated but sometimes offers the highest payments.

Normally, funds withdrawn before age 59.5 are assessed a 10% early-withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59.5, whichever is longer. Retirees can elect to receive their distributions annually, quarterly or monthly. If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.

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