Consider IRA Immediate Annuities For Required Minimum Distributions
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The 2001 changes to the minimum distribution life expectancy payout percentages for Individual Retirement Accounts have come a long way in addressing the IRA account transfer and longevity concerns of retirees. However, these new payout calculations are based on the premise that less is better.
What about clients who depend on their IRA for a substantial part of their income during their lifetime and cannot settle for less?
With the "new and improved" IRA immediate annuities that are now on the market, you may be able to help this particular client.
Most agents and clients still dont know much about these annuities, so lets explore them here by looking in on a hypothetical discussion between an Agent (A) and a recently retired client who has a lot of questions (Q).
A: If you are retired you may be eligible for substantially more retirement income you cannot outlive, as outlined in the Internal Revenue Code. The problem is, you may not know anything about it!
Q: What are you talking about?
A: This is 1.401(a)(9) of the IRC, modified 2001. If you are age 70 and older, you now have two basic minimum distribution methods to choose from when taking income from your IRA.
–The first method, recalculation, requires you to recalculate your life expectancy each year to determine what percentage of your IRA you must withdraw, ultimately requiring you or your heirs to take out more and more of your IRA until it is depleted. You can take more than the minimum, accelerating the depletion of your IRA, causing you to run the risk of outliving your retirement funds. Withdrawal calculations are based on your IRA account balance as of each December 31st.
–The second, and little known IRS distribution method, available since 1974, is the use of an IRA Immediate Annuity. Issued by an insurance company, this annuity can be purchased at any age.
Basically, an IRA immediate annuity is a systematic payment of principal and interest payable over your life or the lives of you and your heirs, no matter how long you or they live. The issuing insurer guarantees these payments, which in many cases are much higher than with method 1.
These higher payments result from a combination of current credit for future interest earnings and life expectancy assumptions. Unlike the first method, these payments are calculated only once, at initial purchase.
Q: Can I have an IRA immediate annuity and still stay in the stock market?
A: Yes. There are variable immediate annuities that allow you to participate in the market and still take advantage of the IRA immediate annuity distribution method. (Income can fluctuate.)
