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Old 09-17-2017, 09:49 AM
 
77 posts, read 61,664 times
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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?
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Old 09-17-2017, 10:11 AM
 
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why not annuity in ira ?

the biggest reason is you want growth vehicles in an ira where they benefit the most . it is silly putting something with little roi in a deferred vehicle . it means you had to waste ira money at one point buying the annuity instead of something with high roi on it ..

you also don't want to take an annuity and delay taking it as the odds of even breaking even get less and less the more you delay .
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Old 09-17-2017, 10:25 AM
 
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The other reason you don't want to put IRA money into an annuity is because the IRA is already a tax-advantaged account. The annuity would not add to that tax benefit inside of the IRA.

There is an annuity called a Qualified Longevity Annuity Contract (QLAC). The QLAC allows you to purchase the annuity inside of the IRA and defer RMD up to age 85 instead of having to take the RMD by age 70-1/2. However, the QLAC only provides a very small additional tax benefit because you can only put 25% of the IRA into the QLAC and the amount is limited to $125,000.
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Old 09-17-2017, 10:42 AM
 
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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/
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Old 09-17-2017, 11:45 AM
 
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In our age, accumulation isn't our goal anymore. Our children said they really couldn't care less about inheritance if any, they just wish us live well and happy. So our goal is decumulation properly instead.
I see one nice way to take immediate annuity is through RMD. My real concern if any is hyperinflation, so we don't plan to put all annuity in our basket.

Quote:
Originally Posted by mathjak107 View Post
why not annuity in ira ?

the biggest reason is you want growth vehicles in an ira where they benefit the most . it is silly putting something with little roi in a deferred vehicle . it means you had to waste ira money at one point buying the annuity instead of something with high roi on it ..

you also don't want to take an annuity and delay taking it as the odds of even breaking even get less and less the more you delay .
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Old 09-17-2017, 11:49 AM
 
77 posts, read 61,664 times
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Yes, The annuity would not add to that tax benefit , but it would not reduce tax benefit too, right?

Quote:
Originally Posted by LookingatFL View Post
The other reason you don't want to put IRA money into an annuity is because the IRA is already a tax-advantaged account. The annuity would not add to that tax benefit inside of the IRA.

There is an annuity called a Qualified Longevity Annuity Contract (QLAC). The QLAC allows you to purchase the annuity inside of the IRA and defer RMD up to age 85 instead of having to take the RMD by age 70-1/2. However, the QLAC only provides a very small additional tax benefit because you can only put 25% of the IRA into the QLAC and the amount is limited to $125,000.
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Old 09-17-2017, 12:17 PM
 
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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, 12:21 PM
 
71,550 posts, read 71,730,589 times
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Quote:
Originally Posted by finewbie View Post
In our age, accumulation isn't our goal anymore. Our children said they really couldn't care less about inheritance if any, they just wish us live well and happy. So our goal is decumulation properly instead.
I see one nice way to take immediate annuity is through RMD. My real concern if any is hyperinflation, so we don't plan to put all annuity in our basket.
i see no benefit of an annuity in an ira at all .
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Old 09-17-2017, 12:22 PM
 
1,227 posts, read 1,259,742 times
Reputation: 4309
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/
Mathjak, are we concerned about depleting the IRA for inheritance issues? I had thought the purpose of the QLAC was to take away the concern that if the IRA was depleted there would be no further income. With the QLAC there is the promise of continued income regardless if the account is emptied.

Just for the record, I don't see much benefit in the QLAC either and my response was not meant to promote it, but to explain that it is there and what it does.
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Old 09-17-2017, 12:26 PM
 
Location: Florida -
8,764 posts, read 10,840,630 times
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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?
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