ANNUITY FACTOR METHOD
A method of calculation which determines the amount of eligible withdrawals which an investor is allowed from their IRA without acquiring penalties. The calculation employs life-expectancy data; but it uses different data than those employed in the amortization method.
Utilizing the annuity factor method, a holder of a retirement-account would divide the present IRA account balance by the "annuity factor." The annuity is derived from a calculation involving "reasonable" interest rates, up to 120% of the Mid-Term Applicable Federal Rate, and the average mortality rates (employing the mortality table located in the Appendix B of IRS Revenue Ruling 2002-62).
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