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Real World Scenarios: Avoid Annuity Transfer Penalties


Here is the next entry in our series of real world questions answered by an Annuity FYI expert.

I am quitting my job and going back to school. I am searching for a vehicle into which to roll over my TSA-403b retirement plan. I am 35 years old and will need to be able to withdraw from the account as needed to pay for school expenses. Naturally, I want to minimize penalties, taxes, and fees. What should I do?

Excellent question. You can transfer this plan to a new annuity and arrange for regular withdrawals. However, without proper planning you will be hit with a 10% federal excise tax on top or ordinary taxes, since you are under 59 1/2 years of age. Fortunately for you, Rule 72-T of the tax code allows people under 59 1/2 years of age to make withdrawals without incurring the 10% federal excise tax, PROVIDED you abide by 72-T guidelines. One of the primary guidelines is that payouts must be based on your life expectancy (this is what “SEPP” refers to — Substantially Equal Periodic Payments) and extend for the greater of 5 years or age 59 1/2.

For example, if you start taking 72-T payments at your age of 35, you must continue receiving them for 24 1/2 years (until you reach the age of 59 1/2) to avoid the penalties. If you started taking payments at age 57 you would have to take them until age 62 in order to avoid any penalties.

Annuity FYI can help you set up withdrawals to avoid the 10% federal excise tax, and recommend some excellent variable and fixed annuities. Please contact an Annuity FYI expert for more information and to review your specific situation.

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