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Annuity for mortgage in IRS
Old 06-08-2010, 12:21 PM   #1
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Annuity for mortgage in IRS

Have $148,000 remaining on 5.625% mortgage. P&I is $900 monthly.If I pay it off from my IRA there will be a huge tax liability.

Thinking of buying an immediate annuity in my IRA ( no tax on the lump sum "withdrawal", right?) for 140,000 which will pay $750 monthly. Will help with the mortgage and avoid the taxes on the lump sum purchase price.
Am I thinking clearly here?
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Old 06-08-2010, 12:26 PM   #2
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No you are not thinking clearly.

You do not need an annuity in order to withdraw $750 a month from your IRA.
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Old 06-08-2010, 12:36 PM   #3
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Is some 'financial advisor' proposing an annuity? Like LOL said, you don't need an annuity.
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Old 06-08-2010, 12:41 PM   #4
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Originally Posted by swodo View Post
(no tax on the lump sum "withdrawal", right?)
Assuming the annuity is an SPIA (fixed payment, non-inflation adjusted, purchased with either 401K or TIRA funds, which are taxed-deferred, not tax free), you still need to pay taxes on the amount that is paid to you (to pay the note/mortgage) each year. You are correct that taxes don't need to be paid at the time you execute the SPIA contract, if that it what you are looking to do. However, the government "get's their due" somewhere along the process.

I have such an SPIA and get monthly income from it. I pay the anticipated taxes due in December, when I do a quick calculation on my taxes, when I get my new version of Turbotax.

Now, if you are withdrawing funds from a Roth to buy an annuity (assume a SPIA), that's another question. Taxes were already paid so no, you would not have to pay any additional taxes.

BTW, I have no idea why you would want to buy an SPIA with Roth funds. Pay off the note/mortgage and be done with it...
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Old 06-08-2010, 12:43 PM   #5
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No you are not thinking clearly.

You do not need an annuity in order to withdraw $750 a month from your IRA.
Exactly.

Annuities are to ensure income for most/all of the rest of your life. Notes/mortgages seldom last as long ...
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Old 06-08-2010, 08:28 PM   #6
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Quote:
Originally Posted by swodo View Post
Have $148,000 remaining on 5.625% mortgage. P&I is $900 monthly.If I pay it off from my IRA there will be a huge tax liability.

Thinking of buying an immediate annuity in my IRA ( no tax on the lump sum "withdrawal", right?) for 140,000 which will pay $750 monthly. Will help with the mortgage and avoid the taxes on the lump sum purchase price.
Am I thinking clearly here?
If I'm reading this right, I think the OP is asking about the thought to 72t the IRA, (at least 140,000) of it rather than withdrawing all of it from the IRA to pay off the mortgage. Then he'd have $750 a month to apply towards the $900 monthly payment. Do this, yes, the $9000 (750 X 12) would be considered taxable income each year.
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Old 06-09-2010, 08:17 AM   #7
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Thanks EasySurfer. Yes, you got it right- I guess I didn't explain it well.
So is this a recommended strategy? I'm also thinking if there is major inflation, the value of the 401K would increase and I might instead pay off the mortgage with cheaper dollars.
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Old 06-09-2010, 08:32 AM   #8
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Thanks EasySurfer. Yes, you got it right- I guess I didn't explain it well.
So is this a recommended strategy? I'm also thinking if there is major inflation, the value of the 401K would increase and I might instead pay off the mortgage with cheaper dollars.
It's impossible to suggest a reasonable course of action without considering your liquidity/income risk situation.

If you have a decent pension and other reasonably liquid assets, paying off a mortgage can be a very good "investment", but without those protections reducing your liquidity is areal risk
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Old 06-09-2010, 11:58 AM   #9
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Quote:
Originally Posted by swodo View Post
Have $148,000 remaining on 5.625% mortgage. P&I is $900 monthly.If I pay it off from my IRA there will be a huge tax liability.

Thinking of buying an immediate annuity in my IRA ( no tax on the lump sum "withdrawal", right?) for 140,000 which will pay $750 monthly. Will help with the mortgage and avoid the taxes on the lump sum purchase price.
Am I thinking clearly here?
If you take 140k out of retirement assets, what is SWR?
If the 140k is left in retirement accounts, and you withdraw $900/mo for the mortgage in addition to other distributions for spending, what is the SWR?

I do believe in minimizing taxes, but you did not state
a) your current tax bracket
b) your projected future (retirement) tax brackets
c) whether this money is in a Roth or traditional account
d) how much income you need to cover expenses
e) what % of income is the $900/mo

There are probably other questions, but this basic info (for starters) might put us in same ballpark.
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Old 06-10-2010, 12:11 AM   #10
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Originally Posted by easysurfer View Post
If I'm reading this right, I think the OP is asking about the thought to 72t the IRA, (at least 140,000) of it rather than withdrawing all of it from the IRA to pay off the mortgage. Then he'd have $750 a month to apply towards the $900 monthly payment. Do this, yes, the $9000 (750 X 12) would be considered taxable income each year.
Would need to know your age to come up with an accurate calculation but if taking the maximum 72t distribution on $140k you would be lucky to get $600/month based on the current interest rate.
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Old 06-10-2010, 10:47 AM   #11
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I'm 64. Wife is 65. Monthly amount was based on joint survivorship
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Old 06-10-2010, 12:14 PM   #12
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I repeat:
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Originally Posted by LOL! View Post
No you are not thinking clearly.

You do not need an annuity in order to withdraw $750 a month from your IRA.
Nor do you need to do the 72(t) thing.
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Old 06-10-2010, 12:40 PM   #13
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I'm 64. Wife is 65. Monthly amount was based on joint survivorship
72t doesn't apply if over 59.5. Just take withdrawals from your IRA as needed.
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