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Old 08-07-2012, 06:04 PM   #21
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There are no tax implications when you rollover your 401k to an IRA (as long as you do a direct rollover where the money goes directly from your 401k provider to your IRA provider). Similarly, there would be no tax implications if your IRA buys a SPIA.

SPIA payments you receive would be taxable income just like any other distribution received from an IRA.

The thing that I don't know is whether the SPIA would be subject to the 10% early distribution penalty if you are less than 59 1/2 when you receive them. Check with your IRA/annuity provider.
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Old 08-07-2012, 06:18 PM   #22
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Hello again, pb4uski, and thank you for your help with my questions under this thread. If there are no tax implications if my IRA buys an SPIA, when do I pay my taxes on my pre tax contributions that were originally in my traditional 401k ? If only the SPIA payments get taxed, I am wondering why not more people are doing it...

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Originally Posted by pb4uski View Post
There are no tax implications when you rollover your 401k to an IRA (as long as you do a direct rollover where the money goes directly from your 401k provider to your IRA provider). Similarly, there would be no tax implications if your IRA buys a SPIA.

SPIA payments you receive would be taxable income just like any other distribution received from an IRA.

The thing that I don't know is whether the SPIA would be subject to the 10% early distribution penalty if you are less than 59 1/2 when you receive them. Check with your IRA/annuity provider.
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Old 08-07-2012, 06:20 PM   #23
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Quote:
Originally Posted by pb4uski View Post
There are no tax implications when you rollover your 401k to an IRA (as long as you do a direct rollover where the money goes directly from your 401k provider to your IRA provider). Similarly, there would be no tax implications if your IRA buys a SPIA.

SPIA payments you receive would be taxable income just like any other distribution received from an IRA.

The thing that I don't know is whether the SPIA would be subject to the 10% early distribution penalty if you are less than 59 1/2 when you receive them. Check with your IRA/annuity provider.
+1
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Originally Posted by obgyn65 View Post
Hello Michael. I guess the confusion comes from the fact that 1) I did not mention that my 401(k) is a traditional one 2) pb4uski above wrote "The smart play would be to convert the 401k to an IRA and have the IRA buy the SPIA so while there would be no upfront tax if done correctly, the SPIA payments would be taxable income."

My 401(k) plan is a traditional 401(k) = taxes on contributions have been not paid yet. Therefore my question is : if my withdrawals are taxed when I reach 60, how can I avoid these taxes by converting my 401k to an IRA and then have the IRA buy the SPIA ?

Still not clear to me, sorry.
Oby, in your original post you are computing full 22% tax twice. First, on the 401k, then on the entire SPIA distribution

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Originally Posted by obgyn65 View Post

+(178000*1.015^13*0.78)*0.05*0.78
Your tax liability for the SPIA would only be the portion in excess of what you paid in. If you were to convert the 401k to an IRA, then buy the SPIA, your calculation would be

+(178000*1.015^13)*0.05*0.78
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Old 08-07-2012, 06:25 PM   #24
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Well I guess I will call my 401k provider. If you are right, Michael, this will increase my annual withdrawals by another $2k or $3k / year.

I love this website. Learning a lot. Thanks everyone.
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Old 08-07-2012, 06:42 PM   #25
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Quote:
Originally Posted by obgyn65 View Post
Hello again, pb4uski, and thank you for your help with my questions under this thread. If there are no tax implications if my IRA buys an SPIA, when do I pay my taxes on my pre tax contributions that were originally in my traditional 401k ? If only the SPIA payments get taxed, I am wondering why not more people are doing it...
Think of it this way - you generally get taxed on any IRA withdrawals once you receive them and have freedom to spend the money as you wish.

So the payments that the SPIA owned by your IRA makes to you are taxable income to you in the year that you receive them just like other IRA withdrawals are taxable in the year you receive them.

If one purchases a SPIA with taxable funds, then only a portion of the SPIA payments are taxable since a portion is a return of principal. However, in the situation that we are talking about since the SPIA was purchased with tax deferred funds, then the whole SPIA payment is taxable.
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Old 08-07-2012, 07:39 PM   #26
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Originally Posted by Katsmeow

DH retired a couple of years ago and initially left some money in his 401k but the options for withdrawal were very limited. Also, the options for investment were not horrible but very limited.

And, the big thing is that you say you have fees of .05%. (I assume you really mean .50% as fees of .05% would be unusually low). If all fees really are .05% then that is fine. But assuming it is really.50% (one-half of one percent) then you can do much better at Vanguard.
No, the fees are point-zero-five percent, with no limits on withdrawals and respectable investment options. I guess I got a good one.
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Old 08-07-2012, 11:24 PM   #27
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The thing that I don't know is whether the SPIA would be subject to the 10% early distribution penalty if you are less than 59 1/2 when you receive them. Check with your IRA/annuity provider.
Retirement Topics - Tax on Early Distributions

Retirement Topics - Tax on Early Distributions


Generally, the amounts an individual withdraws from his or her IRA or other qualified retirement plan before reaching age 59˝ are called ”early” or ”premature” distributions. Individuals must pay an additional 10% early withdrawal tax and report the amount to the IRS for any early distributions, unless an exception applies.

Exceptions: There are several exceptions to the age 59˝ rule. Even if individuals receive a distribution before they are age 59˝, they may not have to pay the 10% additional tax if they are in one of the following situations.
.................................................. ..
....................
They are receiving distributions in the form of an annuity.
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