Distributions from a Pension Plan or Annuity

First, a few definitions and explanations. Distributions from retirement and annuity plans can be made in several ways, depending on the terms of the plan. The typical types of distribution choices are:

• Annuities — usually paid under a contract, this alternative makes regular distributions, generally in equal monthly amounts based on the life expectancy of the beneficiary.
• Installments — this alternative can offer a variety of payout periods and equal or unequal payments.
• Lump sum — this form of payout distributes the entire vested balance in one payment. It can be made in cash, in securities, or both.

Common types of annuities are:

• Fixed period — distributions are made at regular intervals and have a predetermined amount and period of duration.
• Single life — distributions are made at regular intervals, but payouts end at the beneficiary's date of death.
• Joint and survivor — the first annuitant receives a predetermined amount at regular intervals for life. After his or her death, the survivor receives a predetermined amount at regular intervals for life, which can be the same as, or different from, the original amount
• Variable — distributions may fluctuate as a function of profits or economic indices, but the payout period is either fixed in duration or set only for the recipient's life. Employer-provided plans generally do not permit variable distributions, but some annuities purchased through insurance companies may.

Generally, installment payments distributed by any of these types of plans are taxable in the year they are received.

IRS rules allow for penalty-free withdrawals from retirement accounts. You may begin receiving money from your retirement accounts before you reach age 59-1/2, without the normal 10 percent penalty. Use this 72T calculator to determine your allowable 72T Distribution and how it can help fund your early retirement.

The IRS limits how much can be withdrawn by assuming any future earnings will be at most 120% of the Federal Mid-Term rate. This conservative approach can help assure that you will not prematurely deplete your retirement account. However, if you have a higher rate of return your account can actually grow, even with your distributions. On the other hand, if you suffer losses your account your balance may end up shrinking faster than you might expect. This 72T calculator is designed to examine the affects of 72T distributions on your retirement plan balance.