Single life Annuity questions, quotes, taxes, etc.

[silvor]

I never really looked into annuities, but it seems one may make sense at this point. So I apologize for the rookie questions...

I am looking for an immediate, single life annuity for a 51 year old. Looking for around $2000, maybe up to $2500 month. I figure this will be around $450k.

1) When I put in the info at ImmediateAnnuities.com (the second column), they give me quotes. Don't I just pay them $450k and that's it? What is the quote for?

Then they ask about funding.

2) If I use a traditional IRA, I pay taxes and penalties on the yearly income correct?

3) If I use non-qualified funds, it's only partially taxed??

4) Roth funds - the same, partially taxed?

That is it for now. I am sure I will have more questions.

 

[RunningBum]

1) They are a broker, getting quotes from multiple insurance companies for you to decide from and helping you thru the application process. You may want to get a little bit less to go with a higher rated insurer, or you may just want the biggest payout as long as the insurer is highly rated. When you accept the quote and start the application process, your rate is locked in as long as you complete the application and the insurer accepts in within a certain time from, maybe a month.

At a minimum they'll want confirmation of your age since that's a big factor in the cost. I don't remember what else makes the application process take longer.

2) Not sure about penalties but maybe so until you are 59.5.

3) Yes, some of it is considered return of capital and is not taxed.

4) No tax if using Roth funds

 

[zinger1457]

As mentioned above they will give you multiple quotes from different companies, the amount you will get may vary from each company. Need to do a little research on the companies, check their ratings. If using a traditional IRA to fund the SPIA then it automatically meets the 72T requirements, no penalties but you will pay taxes like it was regular income, you can direct them on how much you want deducted for taxes. Also, check your state and how much of the SPIA they will cover if the insurance company you choose goes under (very unlikely). Might be a good idea to split the SPIA between two companies to make sure they are both within the amount your state covers.

 

[New Thinking]

A small number of insurers have created SPIAs for the RIA community and as such, the traditional commissions of 2%-7% have largely been stripped out. If you know you want a SPIA, it likely makes sense to find an RIA who will work with you for a small fee to get a quote and acquire the SPIA if you wish. You may get a payout that is 2% or more higher for the rest of your life than if you use an in-person or on-line broker.

With these SPIAs, there typically is a small 1% commission or administrative fee built into the annuity pricing to compensate the state-licensed broker working with the insurer who and will "sell" the annuity to you when you are ready to purchase.