Tax Rules on Annuitizing IRA?

[WayneH]

Hi! Planning retirement in 2 years at age 60. I am thinking of converting part of my 401k money (first converting to an IRA) into an annuity but I'm not sure of the tax implications. Do I have to take out the money (and pay taxes immediately) to do this, or can you create an annuity within the IRA, and pay taxes as the annuity pays?

Thanks!

 

[73ss454]

Hi! Planning retirement in 2 years at age 60. I am thinking of converting part of my 401k money (first converting to an IRA) into an annuity but I'm not sure of the tax implications. Do I have to take out the money (and pay taxes immediately) to do this, or can you create an annuity within the IRA, and pay taxes as the annuity pays?

Thanks!

Wayne, welcome.

I don't have a clue about annuities but the folks on this forum just love to talk about annuities. (heheh)
They'll all be here shortly.

 

[REWahoo]

Do I have to take out the money (and pay taxes immediately) to do this, or can you create an annuity within the IRA, and pay taxes as the annuity pays?

If you are positively, absolutely sure you want to bet against the insurance company that you'll live longer than they think you will...you can buy an annuity with IRA money and not pay taxes until the annuity pays out.

 

[Martha]

Because IRAs and 401ks are already tax advantaged, there is no tax benefit to buying an annuity. The expenses of your IRA will increase due to the fees and commissions of the annuity salesman. But yes, as Wahoo says, you will not pay taxes until the annuity pays out.

 

[Alan]

According to the Vanguard blub on annuity payouts you pay taxes on the tax defered portion of the money you use to buy the annuity and each year the insurance company reports to the IRS, and to you, how much of the money received that year is taxable.

So, if you are going to use IRA money to buy an annuity, I think it would be better to pay the taxes over the longer term of the annuity payout rather than all up front.

 

[mickeyd]

Hey Wayne,

Vanguard has about the best (least expensive) annuity on the market. Look at this link https://flagship.vanguard.com/VGApp/hnw/HomepageOverview?gh_sec=n .

It is generally not a good idea to put tax deferred money (IRA,401(k) etc) into another tax deferred product (an annuity) but it may work for you. I'd recommend calling Vanguard and ask for their guidance.