IRA/Annuity Question

street

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Is it possible to do an annuity with the money in an IRA? This question came up and thought it was interesting but not sure if it can be done. So, tax benefit would be better with the annuity then RMD from IRA. My understanding it would be done while the money is in the IRA and an annuity is done prior to RMD.
Not sure if this makes sense or explained clear enough but has anyone heard of this?
 
I have 2 fixed deferred income annuities in my IRA, which provide with income streams starting from the age of 60 and 70. You can also buy QLAC which starts at 85, and that is exempt from RMD.
 
Yes, an IRA can buy/hold an annuity. Very common. It can even be a SPIA. IIRC a life contingent SPIA reduces your RMDs but I don't recall the details.
 
Annuities are an insurance product. With an immediate annuity, you swap real assets for a promise to pay a certain amount until 'plan sunset' With a deferred annuity you still have a balance, that is, until you "annuitize"

I don't see how there would be any tax benefits, and it seems convoluted, but I'm far from knowledgeable about it.
 
Interesting and thank You!!

So, what is your thoughts and view doing this, to help relief the tax burden and what is the pros or cons?
 
Yes it is.
Is it possible to do an annuity with the money in an IRA? This question came up and thought it was interesting but not sure if it can be done. So, tax benefit would be better with the annuity then RMD from IRA. My understanding it would be done while the money is in the IRA and an annuity is done prior to RMD.
Not sure if this makes sense or explained clear enough but has anyone heard of this?

Yes.

It is my understanding that if you purchase a life time annuity (or joint and survivor life time annuity) with funds from a traditional IRA before starting RMDs, the money from the IRA would satisfy RMD requirements for the portion removed, i.e. lesson the amount subject to RMDs, but would be considered taxable income.

Again, it is my understanding that the purchase of an annuity from Roth funds would yield non-taxable income.

It would be important that the proper procedure for actually funding the annuties be followed, and that the source of the funds be properly credited.

I am not familiar with all types of annunities and their ramifications, but believe that there are addtional options such as the QLAC
 
It can be done but what tax benefits are you referring to? If you have $500K in an IRA and annuitize it your payments will be a lot more than the RMD for that amount so you'll end with more income and paying more in taxes, even worse if it moves you into a higher tax bracket.
 
I assume you are talking about a lifetime payout annuity.
I did that back in 2013 with my TIAA tax-deferred 403(b) funds, a portion of them.

The monthly payout is still taxed as Ordinary Income but the amount is a lot more than if I stuck to the 4% guideline.

Having said that, I should mention that TIAA isn't available to the general public, unfortunately. And many other annuity sources are basically SHARK ATTACKS.

So it's a sad situation....
 
It can be done but what tax benefits are you referring to? If you have $500K in an IRA and annuitize it your payments will be a lot more than the RMD for that amount so you'll end with more income and paying more in taxes, even worse if it moves you into a higher tax bracket.
I don't think you are thinking clearly.
If you were my employee 20 years ago and I offered to promote you to vice president of the company, thus doubling your salary, would you say NO! I don't want to be in a higher tax bracket!!!
 
Yes, not that interested in doing an annuity just not sold on them because of the cost to own one etc.
I was looking to see if there was any advantage so stretch out in smaller payment to reduce big tax expense each year with RMD.
 
I don't think you are thinking clearly.
If you were my employee 20 years ago and I offered to promote you to vice president of the company, thus doubling your salary, would you say NO! I don't want to be in a higher tax bracket!!!
That's a completely different situation. I can always take more than my RMD to match an annuity payment, plus if I die tomorrow my heirs get the remainder of my IRA, with an annuity they get zero.
 
Yes, not that interested in doing an annuity just not sold on them because of the cost to own one etc.
I was looking to see if there was any advantage so stretch out in smaller payment to reduce big tax expense each year with RMD.
No.
The opposite is true.
If you annuitize $1M you will have higher taxes on the $70+ of income vs the $40k of RMD income.

But you'll also have more $$$ left over after taxes to spend or invest. Some folks worry way too much about the wrong things...
 
That's a completely different situation. I can always take more than my RMD to match an annuity payment, plus if I die tomorrow my heirs get the remainder of my IRA, with an annuity they get zero.
Most payout annuities come with a ten year guarantee period.
I'm twelve years into mine.
Don't annuitize your holdings if you expect to croak soon...
 
That's a completely different situation. I can always take more than my RMD to match an annuity payment, plus if I die tomorrow my heirs get the remainder of my IRA, with an annuity they get zero.
...and if you take 7% out of your tax-deferred each year, okay, but be advised that isn't normally considered to be a Safe Withdrawal Rate...
 
o.
The opposite is true.
If you annuitize $1M you will have higher taxes on the $70+ of income vs the $40k of RMD income.

But you'll also have more $$$ left over after taxes to spend or invest. Some folks worry way too much about the wrong things...
Or just take $30K more than your RMD and you'll be in the same boat and still have the rest of your savings to play with as needed.
 
No.
The opposite is true.
If you annuitize $1M you will have higher taxes on the $70+ of income vs the $40k of RMD income.

But you'll also have more $$$ left over after taxes to spend or invest. Some folks worry way too much about the wrong things...
Yep, that makes sense and thank you very much for your insight and help.
 
Or just take $30K more than your RMD and you'll be in the same boat and still have the rest of your savings to play with as needed.
What I actually do now is put thousands of extra $$$ into my investments most months due to excess income.
But as I implied, that depends on your living a decade or more after starting retirement.
If you plan on dying earlier, then don't annuitize...
 
What I actually do now is put thousands of extra $$$ into my investments most months due to excess income.
But as I implied, that depends on your living a decade or more after starting retirement.
If you plan on dying earlier, then don't annuitize...
You could do the same without an annuity. Most of us 'plan' on living, no one has full control over it.
 
You could do the same without an annuity. Most of us 'plan' on living, no one has full control over it.
Well, if I hadn't annuitized a chunk of $$$ back in 2013, my monthly income would be around $8000 per month less than it is now.
So no, I'd likely not have anywhere near as much excess income to deal with now.
But situations vary...
 
I see an advantage to a MYGA, which works similiar to a CD but issued by an insurance company. For example I just checked Stan The Annuity Man® | Brutally Honest Facts About Annuities and found I can get a 7 year MYGA from an A rated insurance company paying 5.45% per year, and I can withdraw up to 10% per year starting year 2. This is quite a bit better than brokered CD at Fidelity, paying 4.1% per year from 2-5 year CDs.
 
Well, if I hadn't annuitized a chunk of $$$ back in 2013, my monthly income would be around $8000 per month less than it is now.
So no, I'd likely not have anywhere near as much excess income to deal with now.
But situations vary...
What would that chunk of money you annuitized be worth now if you had it invested in a S&P 500 index fund since 2013 (>13% annual return) with comparable withdrawals. I think you would have done a lot better than your fixed 7% annuity.
 
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What would that chunk of money you annuitized be worth now if you had it invested in a S&P 500 index fund since 2013 (>13% annual return) with comparable withdrawals. I think you would have done a lot better than your fixed 7% annuity.
Most likely the money for the purchase would come from fixed income not money in stocks.

Therefore, the amount that is invested in S&P 500 in 2013 would not change, only the money invested in treasuries/money market equivalents would be reduced to purchase the SPIA.

So compare a 30 year treasury purchase reduced by the same payout as the SPIA annually and see when the treasury runs out.

Case Study:
A 63 year old and based on current 30 year treasury yields (4.89%, with 4.625 % coupon annually) versus a 63 year old male including 15 year payout to heirs if early termination of insured.

The answer is the treasury be exhausted after 22 years, while the SPIA last as long as you do with a minimum of 15 years.

For a joint 63 year old couple 10 year guarantee payout SPIA, treasury will last 26 years. An additional 4 years due to the increased cost (lower payout) for a joint insured.

I would also add that some may feel more comfortable increasing the amount that they invest in stocks knowing they have most of their expenses paid for by "guaranteed income".

Treasury bonds like SPIAs are not inflation protected.
 
Most likely the money for the purchase would come from fixed income not money in stocks.
Yes, the discussion did get sidetracked a bit. The original question was if using an annuity was a tax advantage to meeting RMD withdrawal requirements, not for a primary source of income. I wouldn't be converting my IRA to fixed income sources just to make RMD withdrawals, maybe just a small portion.
 
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