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Required Min (P2)




This used to mean that those owners whose retirement accounts were housed in fixed annuities had to annuitize their contracts. Fortunately, as an alternative to annuitization, many deferred annuity contracts now offer a retirement income option called Life Expectancy Retirement Option or LERO. LERO can provide the owner with an annual retirement income guaranteed to meet the required minimum distribution requirements set by the IRS. These distributions are based on the owner’s life expectancy, according to the IRS tables, with regulations allowing the owner’s life expectancy to be recalculated each year or reduced by one each year, starting when the initial distribution is received. Once a life expectancy option is chosen it cannot be changed.

Furthermore, because all LERO distributions are made under the withdrawal provision of the annuity contract, LERO is not a formal settlement option. This means the owner continues to benefit from interest earnings and other annuity benefits, as well as maintains control of the funds. In short, by using LERO, an individual is able to satisfy the IRS requirements and avoid the 50% tax penalty, all without giving up any of the benefits he or she enjoys with his or her fixed annuity retirement account. In addition, for individuals who do not need this additional income and who would like to share their funds with their heirs, new IRS changes allow participants to spread the distributions over the joint life expectancies of themselves and their beneficiaries. For more information on taking advantage of these new rules, visit the “Stretch IRAs” link.

Pre-LERO/72(t)
When would a 10% tax penalty* be imposed?
In today’s uncertain economy, many people find themselves struggling to make ends meet. Maybe they have lost their jobs and are looking for a new one, or perhaps unforeseen expenses are mounting and must be paid. Whatever the reason, many individuals who are younger than age 59 ½ are forced to tap into their retirement funds just to get by — regardless of the consequences. Many people are not aware that in addition to having the funds fully taxable as income, the IRS imposes a 10% penalty for withdrawing money from their qualified plans prior to age 59 ½. (*All references on this website to the 10% tax penalty are referring to the 10% excise tax imposed by the IRS for premature withdrawals.) How can one avoid paying the 10% penalty on premature withdrawals?


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