Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Benefits to annuitizing 401k money?
Old 02-04-2018, 08:13 AM   #1
Recycles dryer sheets
 
Join Date: Nov 2017
Location: St. Petersburg
Posts: 71
Benefits to annuitizing 401k money?

Are there any tax benefits to annuitizing money held in a 401k? I did Google the topic, but, frankly, did not understand it. Naturally, I would never take such a step without an undersanding and if that requires a fee only financial advisor, then so be it. But, can anyone in plain simple Englsih explain? Thanks very much.
__________________

LXEX55 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-04-2018, 08:30 AM   #2
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,285
Quote:
Originally Posted by LXEX55 View Post
Are there any tax benefits to annuitizing money held in a 401k? I did Google the topic, but, frankly, did not understand it. Naturally, I would never take such a step without an undersanding and if that requires a fee only financial advisor, then so be it. But, can anyone in plain simple Englsih explain? Thanks very much.
Placing an annuity in a tax sheltered account does not double the advantages of tax free compounding. Annuities usually end up in a tax sheltered account because it enriches an adviser to sell annuities to anyone that will bite.

Just my 2 cents worth,

VW
__________________

__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 02-04-2018, 08:43 AM   #3
Recycles dryer sheets
 
Join Date: Jun 2011
Posts: 284
Don't think of this as an all or nothing decision. Consider annuitizing a part of the money to cover expenses that must be met every year no matter the market (i.e. taxes, insurance). There are calculators to figure the amount needed to meet payment obligations. If all of the money was pretax then all of the future annuity payments will be taxable. Check out low cost sources for annuity contracts.
pjm-7 is offline   Reply With Quote
Old 02-04-2018, 09:12 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 2,407
If you have multiple IRA/401k where some are annualized, understand how RMDs work.

If you are seriously considering this, shop the annuities.
bingybear is offline   Reply With Quote
Old 02-04-2018, 11:04 AM   #5
Thinks s/he gets paid by the post
Red Badger's Avatar
 
Join Date: Jan 2017
Location: I-85 vicinity 33/84
Posts: 1,895
Also, consider limiting annuity to things immune to inflation (ie; mortgage or similar fixed debt / payment).

I am a recipient of a $7,000 annuity like "buyout" that initiated in 1992. Today, that same buying power would require over $12,000. And that only took average inflation rate of ~2.5%. This buyout expires in 2021. I've had a very lucky run. It also taught me to be leery of annuities in any form.

A 5 or 10 year span of higher interest would just crater the buying power of an annuity. There a plenty of inflation calculators on-line. You should model multiple scenarios. In example 1960-1990, inflation was 5%. Yikes!!
__________________
Never let yesterday use up too much of today.
W. Rogers
Red Badger is online now   Reply With Quote
Old 02-04-2018, 11:35 AM   #6
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 785
Kitces's article discusses using a qualified deferred annuity (i.e. "longevity" annuity) inside a 401 but notes that it's not very appealing as a way to avoid RMDs since you'd be better off just taking the money out at 70.5 and paying the taxes. It does work to insure against a looongg life, but not as well as stocks. You're limited to 1/4 of the 401k value and no more than 125k.

https://www.kitces.com/blog/why-a-ql...md-obligation/
RobLJ is offline   Reply With Quote
Old 02-04-2018, 03:34 PM   #7
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,285
Quote:
Originally Posted by RobLJ View Post
Kitces's article discusses using a qualified deferred annuity (i.e. "longevity" annuity) inside a 401 but notes that it's not very appealing as a way to avoid RMDs since you'd be better off just taking the money out at 70.5 and paying the taxes. It does work to insure against a looongg life, but not as well as stocks. You're limited to 1/4 of the 401k value and no more than 125k.

https://www.kitces.com/blog/why-a-ql...md-obligation/
Better known as a QLAC, it is limited but can allow up to 125K to be excluded from RMDs as a deferred annuity that starts at a later date. You don't have to include the QLAC amount in your RMD at 70 1/2.
__________________

__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Money Money Money Rustward Other topics 24 08-23-2011 08:44 PM
Tax Rules on Annuitizing IRA? WayneH FIRE and Money 5 06-03-2007 02:32 PM
Roth 401k vs Traditional 401k keldon FIRE and Money 3 01-08-2007 01:25 PM
Trad 401k or Roth 401k for High Earners Linney Young Dreamers 7 01-01-2007 08:24 PM
Traditional 401k or Roth 401k HatePayingTaxes Young Dreamers 4 12-30-2006 10:59 PM

» Quick Links

 
All times are GMT -6. The time now is 04:48 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×