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February 17, 2009

Annuitization (or annuitization of payments)

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Definition

The act of scheduling payments in the form of an annuity, usually for a fixed amount for a fixed period or over the annuitant’s lifetime

For retirement plan purposes, distributions from defined benefit pension plans, money purchase pension plans and target benefit plans are usually paid in the form of an annuity . For these plans, the annuitization phase is during the participant’s retirement , where benefits are ( usually) paid in the form of an annuity. For married participants, the benefits are usually paid in the form of a QJSA.

Forms of annuity payments include:

  • Straight life (or single life) annuity payments, where an annuity is payable in equal installments for the life of the participant, and terminates upon the participant’s death.
  • Qualified joint and survivor annuity, where an annuity is payable for the life of the participant with a survivor annuity for the life of the spouse
  • Joint and survivor annuity, where an annuity is payable for the life of the participant with a survivor annuity for the life of a beneficiary who is not necessarily the spouse of the participant

Participants can elect to waive out of the annuity payments, and receive benefits in the form on lump-sum payments.

Referring Cite

Annuity contract , account agreement, plan document, or  summary plan description

Additional Helpful Information

  • Annuitized payments are usually calculated, using a certain amount and the life-expectancy of the annuitant and beneficiary.
  • The terms of the annuity contract usually defines the annuity phase, including the beginning and duration

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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