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SPIA within an IRA and RMDs
Old 04-01-2014, 11:34 AM   #1
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SPIA within an IRA and RMDs

To ask my question in the least confusing way (maybe), assuming that when I turn 70.5, I choose to annuitize my entire IRA with SPIAs, are there no RMD issues and the result is that I treat the annual payout as taxable income (as in an IRA withdrawal?) since the SPIA and RMDs both calculate for longevity? Or does there need to be a more complicated way to do this?
A bit more complicated question is what if I ladder these annually instead of doing it all at once?
Thanks !
Rich
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Old 04-01-2014, 12:54 PM   #2
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See How Annuities Fit in an IRA
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Old 04-01-2014, 01:15 PM   #3
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So, what I got out of the video is: "Now, what's not known to many advisors would be what happens after that. You buy the annuity. Now, the payment under that annuity contract becomes your required minimum distribution for that contract. So that every payment I receive under that annuity is considered a minimum required distribution" If I understand correctly, one then disregards RMDs and the annuity payment just becomes taxable? Thanks, Rich
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Old 04-01-2014, 05:11 PM   #4
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It has been a while since I looked at it but I think that is the case. In effect, if you went 100% payout annuities, there is no value to calculate a RMD so your RMD is zero. And the annuity benefits you receive are fully taxable.

But the more obvious question is why would someone do that?
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Old 04-01-2014, 08:10 PM   #5
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It has been a while since I looked at it but I think that is the case. In effect, if you went 100% payout annuities, there is no value to calculate a RMD so your RMD is zero. And the annuity benefits you receive are fully taxable.

But the more obvious question is why would someone do that?
To guarantee income for life, the same reason for purchasing any SPIA.
Bruce
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Old 04-01-2014, 09:27 PM   #6
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I guess we'll agree to disagree but to me it seems to be guaranteeing lower income for life, but if you're willing to pay the cost of the guarantee then c'est la vie.
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Old 04-02-2014, 05:21 AM   #7
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I guess we'll agree to disagree but to me it seems to be guaranteeing lower income for life, but if you're willing to pay the cost of the guarantee then c'est la vie.
Obviously one doesn't put all their assets in a SPIA. I'd rather have some guarantee than no guarantee.
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Old 04-02-2014, 06:00 AM   #8
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Obviously one doesn't put all their assets in a SPIA. I'd rather have some guarantee than no guarantee.
Bruce
You bring up an often repeated topic here of whether it is worth buying a SPIA. I'm in the "no way" camp since I already have the best COLA'd annuity on the market which is SS. It's "guaranteed" by the US government so only time will tell how good that guarantee is. I also have a collection of small pensions that when added to my SS I have the bulk of my basic living expenses covered (sans luxuries).

I also wouldn't buy a SPIA because (1) the guarantee is, at best, for $100,000 or $200,000 of principle which doesn't buy that much in the way of an annuity payment, (2) the "guarantee" is by a collection of insurance companies which I really don't trust will be able to make good on any guarantee if "the big one" really does hit, (3) inflation adjusted SPIAs are very costly and without inflation adjustment the "great" payment now can easily be pathetically inadequate in a few decades and (4) the typical annuity payment is based on a lower rate of return than would typically be expected for a balanced portfolio.

An SPIA is an insurance company's product based on the premise they can adequately predict the mortality of their customers and that they can invest in a balanced stock/bond portfolio that beats their required payments. Out of their return they pay lots of salaries, commissions, business expenses and build great big fancy buildings.

Some people here like SPIAs but I can't recall any of the old timers here recommending them more than as a small part of any plan. Nobody (that I can recall) has ever supported going "all in" with an SPIA.
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Old 04-02-2014, 07:25 AM   #9
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For myself, I will be very comfortable with some of my portfolio being in boring SPIAs. This is the bucket that has no beneficiary and will give me some peace of mind which is what insurance is all about. I would certainly not be going "all in."
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Old 04-02-2014, 08:30 AM   #10
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You bring up an often repeated topic here of whether it is worth buying a SPIA. I'm in the "no way" camp since I already have the best COLA'd annuity on the market which is SS. It's "guaranteed" by the US government so only time will tell how good that guarantee is. I also have a collection of small pensions that when added to my SS I have the bulk of my basic living expenses covered (sans luxuries).

I also wouldn't buy a SPIA because (1) the guarantee is, at best, for $100,000 or $200,000 of principle which doesn't buy that much in the way of an annuity payment, (2) the "guarantee" is by a collection of insurance companies which I really don't trust will be able to make good on any guarantee if "the big one" really does hit, (3) inflation adjusted SPIAs are very costly and without inflation adjustment the "great" payment now can easily be pathetically inadequate in a few decades and (4) the typical annuity payment is based on a lower rate of return than would typically be expected for a balanced portfolio.

An SPIA is an insurance company's product based on the premise they can adequately predict the mortality of their customers and that they can invest in a balanced stock/bond portfolio that beats their required payments. Out of their return they pay lots of salaries, commissions, business expenses and build great big fancy buildings.

Some people here like SPIAs but I can't recall any of the old timers here recommending them more than as a small part of any plan. Nobody (that I can recall) has ever supported going "all in" with an SPIA.
Adding to this great post above is "why would you buy an annuity that has it's payout based on current interest rates (among other criteria) when rates are at an all time (or very) low and probably will rise over the next few years?"

Seems like it is not timely to by an annuity now.
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Old 04-02-2014, 09:00 AM   #11
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Looks like to SPIA or not SPIA is in the eye of the beholder. More so, looking at a SPIA as insurance or investment.

But going back to the OP's post. When I FIRE'D, with my 401K and pension's lump sum, I transfered most of it into an existing IRA. I put the rest into a SPIA (to cover living expenses at that time. Whether that was a good move or not, it's the $64,000 question ). Every year I get a letter from AIG (my annuity holder) saying that my payments meet the RMD requirements and no other action required.
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Old 04-03-2014, 05:51 AM   #12
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For myself, I will be very comfortable with some of my portfolio being in boring SPIAs. This is the bucket that has no beneficiary and will give me some peace of mind which is what insurance is all about. I would certainly not be going "all in."
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