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Old 09-17-2017, 12:26 PM
 
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the two big issues with qlacs are that if you delay to 85 you will likely not even see your own money back . you may as well have done nothing . the other is they follow a special accelerated rmd schedule that can really be bad tax wise because they don't start to require rmd's until 85 .

if one spouse dies and the other has to file single the whole thing can be a tax torpedo . in the end what good would it accomplish compared to mostly anything else . you really don't want them in an ira adding to your rmd mess ..personally not something i would ever consider . but others may see it differently .
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Old 09-17-2017, 12:34 PM
 
Location: Florida -
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Quote:
Originally Posted by mathjak107 View Post
the two big issues with qlacs are that if you delay to 85 you will likely not even see your own money back . you may as well have done nothing . the other is they follow a special accelerated rmd schedule that can really be bad tax wise because they don't start to require rmd's until 85 .

if one spouse dies and the other has to file single the whole thing can be a tax torpedo . in the end what good would it accomplish compared to mostly anything else . you really don't want them in an ira adding to your rmd mess ..personally not something i would ever consider . but others may see it differently .
Not sure where 85 comes from? At 70, I'm pulling about 16-percent of my remaining annuity investment on an annual basis ... for my lifetime. That's more than I need for my RMD's, but, we've got other uses for the money (grandkids college, taxes, etc) and re-invest the balance.

If I die before we get our money back, my wife gets the balance -- Please expand on the 'tax torpedo' - thx.
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Old 09-17-2017, 12:35 PM
 
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qlacs don't get hit with rmd's until 85 if in an ira . they follow special rules . so anything left by 85 has rmd percentages that must be taken that are higher than your regular rmd's percentage wise . depending how much you have you can create a super nasty tax situation .

especially if one spouse dies and the other now has regular rmd's and accelerated qlac rmd's . .

anyone who waits until 85 to draw out in my opinion is silly . they and their spouse will likely die if they follow the rmd schedule that kicks in before even breaking even .

so there is a big risk of qlacs being mis-used in an ira .
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Old 09-17-2017, 12:38 PM
 
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Quote:
Originally Posted by jghorton View Post
Since one must withdraw RMD's from deferred tax funds anyway, why not use the annuity payout to cover the RMD's and associated taxes?
The RMD must come from the Traditional IRA. You could use the annuity distribution to cover the taxes owed, certainly. It really wouldn't matter which money was used to pay the taxes as it is being spent.

There is also the inherent disinclination of humans to trade current assets for future income, as per Kitces. I'm sorry I don't have the article where that came from readily to hand.
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Old 09-17-2017, 01:54 PM
 
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Thanks much for clarification, this is a key point that any annuity purchase is essentially a cash purchase regardless the source of cash, be it from saving account or from deferred IRA account. I thought one can just buy an annuity inside IRA and stay there. So, actually there isn't a thing to buy annuity INSIDE traditional IRA?

Quote:
Originally Posted by LookingatFL View Post
Finewbie,

It is impossible to answer the question without specific numbers. When you purchase the annuity with Traditional IRA money, the Traditional IRA money will be taxed immediately and the remaining balancing in the IRA will obviously be lower. You also have to figure out how much more taxes you will be paying (i.e. does it make more social security benefits taxable, does it push you into a higher tax bracket) if you take out the lump sum from the Traditional IRA to purchase the annuity.

On the annuity side... yes, there is some small tax benefit because some of the money in your monthly distribution comes to you as taxable and some comes to you as a nontaxable return of your principal. The exact percentage of each will be told to you when you get your quote.

The thing to keep in mind with an annuity is that there really is no ROI because this is not an investment product. It is a transfer-of-risk product. Meaning that the Insurance company is promising to pay a certain amount of money until the day you die, and therefore, you will not run out of money during your lifetime because the next monthly payment is just around the corner. It is equivalent to a pension in that regard.

There are Riders that you can purchase that attach to an annuity. You can buy a Rider that allows the annuity to cover a joint life instead of a single life. You can also purchase a Rider that allows for a death benefit to be paid to your heirs. Whatever Rider you purchase will reduce your monthly payment.
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Old 09-17-2017, 02:03 PM
 
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I'd ask a professional who works as a fee based adviser (RIA) Do not settle for anyone with out this designation.
If you want an anuity he will sell you one (after advising you of other options) that gives him no commission since he is fee based. And you will get a better deal (bump up, better rate, etc.)

There is a ton of misinformation on here about annuities. Also life insurance & LTC insurance. Much of it is ignorance since they aren't at that tax level. Or perceptions form many years ago.
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Old 09-17-2017, 02:07 PM
 
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Quote:
Originally Posted by finewbie View Post
Thanks much for clarification, this is a key point that any annuity purchase is essentially a cash purchase regardless the source of cash, be it from saving account or from deferred IRA account. I thought one can just buy an annuity inside IRA and stay there. So, actually there isn't a thing to buy annuity INSIDE traditional IRA?
Finewbie, There are a lot of different kinds of annuities. There are annuities that you can buy outside of an IRA. There are annuities that you can buy inside of an IRA. The point is, that there is no reason to buy an annuity and keep it in the IRA. It would not do anything positive for you. An annuity outside of an IRA would essentially do the same thing.

If I was going to buy an annuity and I wanted to see how it would affect my taxes, I would first go to the insurance agent who is selling the annuity. I would ask for quotes on an annuity inside my IRA and an annuity outside my IRA. Then I would go to an accountant. I would bring the accountant my 2016 income tax return and both quotes, and I would ask him to re-figure the tax return by pretending that I had bought the IRA inside the IRA and re-figure it pretending I had bought the annuity outside the IRA, and I would compare the changes in taxes that was owed. I would also ask your accountant for his opinion on which way you should buy it.
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Old 09-17-2017, 03:23 PM
 
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I do think you are as good as those agents or even better. You can see, my goal is 1, stability, 2, paying my necessary tax duty, no more, no less. As I said we don't have much in cash account, that is why I consider to use regular IRA.

Quote:
Originally Posted by LookingatFL View Post
Finewbie, There are a lot of different kinds of annuities. There are annuities that you can buy outside of an IRA. There are annuities that you can buy inside of an IRA. The point is, that there is no reason to buy an annuity and keep it in the IRA. It would not do anything positive for you. An annuity outside of an IRA would essentially do the same thing.

If I was going to buy an annuity and I wanted to see how it would affect my taxes, I would first go to the insurance agent who is selling the annuity. I would ask for quotes on an annuity inside my IRA and an annuity outside my IRA. Then I would go to an accountant. I would bring the accountant my 2016 income tax return and both quotes, and I would ask him to re-figure the tax return by pretending that I had bought the IRA inside the IRA and re-figure it pretending I had bought the annuity outside the IRA, and I would compare the changes in taxes that was owed. I would also ask your accountant for his opinion on which way you should buy it.
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Old 09-17-2017, 03:31 PM
 
Location: Florida
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Quote:
Originally Posted by finewbie View Post
Sorry if this topic was covered here before, please help to locate it.
I have small cash portfolio but larger IRA portfolio, most stays in miserable CD. I consider to put considerable portion of IRA into income life annuity. Some people said it's not good idea for tax consideration but I can't find much reasoning; we need to have RMD distribution, and we need to pay tax for cash annuity gain too, so what is their point?
I think the reason for the advice is that both the annuity and the IRA defer taxes. Thus you do not gain any tax advantages in putting an annuity in an IRA.

But if your cash is in the IRA and you want an annuity then get it in the IRA. Make sure the Annuity meets your RMD requirement. I think you can take the RMD out at a lower amount than just and IRA if that helps. Do not recall the name they give to these IRA's but your sales person should be able to tell you. Remember to pay attention to fees.
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Old 09-18-2017, 02:27 AM
 
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Quote:
Originally Posted by mathjak107 View Post
don't do a qlac in an an ira and delay it 85 . qlac's have accelerated rmd schedules too which force more out .

you will barely see a penny come back .

as kitces said :

Executive Summary
The longevity annuity has become increasingly popular in recent years as a potential new vehicle for retirement income, as its ability to delay payments to an advanced age like 85 allows for a significant accumulation of mortality credits. And since the introduction of last year’s Treasury Regulations, a so-called “Qualified Longevity Annuity Contract” (QLAC) can even be purchased inside of an IRA or other retirement account, allowing a portion of a retiree’s RMDs to be deferred from 70 ½ to as late as age 85!
However, as it turns out the unique nature of a longevity annuity’s payment structure is not very hospitable as an RMD deferral strategy. The fact that it can take until a retiree’s late 80s just to break even and recover principal means the retiree risks significant foregone growth by trying to merely defer RMDs through the use of a QLAC. And of course, the RMDs will*still*eventually*happen anyway, as the QLAC merely defers when payments begin. In fact,*ironically, if the retiree does live, the accelerated payments of a QLAC in the later years can actually deplete an IRA even faster than normal IRA RMDs would have anyway.


https://www.kitces.com/blog/why-a-ql...md-obligation/
If you think you might outlive your money, you can use a QLAC to guarantee that you will not (unless the QLAC annuity issuer goes bust). There is no other way - other than an immediate annuity, which has its own problems - to convert a retirement-plan balance to an income guarantee for the rest of your life.

If you die before you've gotten your money back, you won't care because you'll be dead. If you live to 100, you'll be very happy.

Deferred annuities are astoundingly cheap - at age 65 a male can buy a deferred annuity, with payments starting at age 85, for about 2.5x. That is, a guarantee of $100K starting at age 85 and ending when you die will cost about $250K. With a spousal benefit, it costs more. Of course, you would never put all your money into a deferred annuity. 15% of total retirement capital is plenty.

Please read my article at http://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n6.4
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