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Question (Relevant to the Series 6, Series 7, Series 65, and Series 66):
Which of the following situations would avoid the 10% penalty on an early withdrawal from an annuity?
I. Setting up a SEPP program and staying on it for at least 5 years
II. Utilizing IRS rule 72(t)
III. Withdrawal for first time home purchase up to $10,000
IV. The annuitant turning 55 1/2 years old
Answers:
A. II
B. I and II
C. III and IV
D. I, II, and IV
Answer: B
Rationale: Setting up a SEPP (Substantially Equal Periodic Payment) program and staying on it for 5 years and utilizing IRS rule 72(t) are essentially the same thing. When an individual takes a series of substantially equal and periodic payments for a minimum of 5 years or until the individual turns 59 1/2, whichever comes last, he is not subject to the 10% penalty for an early withdrawal. An investor does not get a 10% penalty for withdrawing up to $10,000 for a first home purchase out of an IRA, but this is not true for a withdrawal from an annuity.
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