There are many reasons to own an annuity and there are some situations in which using tax-deferred money to purchase an annuity can be a good idea.
You want to turn some of your retirement savings into guaranteed income.
Income that you can’t outlive is another primary benefit of annuities and one that many Americans consider as they prepare for living 20 or 30 years in retirement. If you are close to retirement or already retired and want to build an income stream to supplement what you receive from Social Security, using some of your IRA money to purchase an annuity may be an option for you.
You are attracted to the other features of an annuity.
Annuities are popular with many investors because of features like enhanced death benefits, indexing, withdrawal flexibility, inflation protection and other options to choose from. An annuity is simply an investment product with advantages and disadvantages to consider. If an annuity is right for your situation and you understand all the features and fees involved, holding it within your IRA may not be a bad idea. Determining whether an annuity is right for you is a decision that should be made in consultation with a financial expert who understands your entire financial picture.
Most of your retirement savings is in tax-deferred accounts.
Most Americans have the bulk of their retirement savings in tax-deferred accounts like IRAs and 401ks. If you have significant assets outside of retirement accounts, it’s worth running the numbers with your financial professional to determine the best place to hold the annuity. However, if most of your retirement money is in a tax-deferred account, using a portion of it to buy an annuity might be your best option.
How we can help.
Ultimately, your personal tax, investment and retirement situation will dictate whether purchasing an annuity within your IRA is a good idea. Annuities are complex investments and we strongly recommend that you speak to a financial professional who understands your needs as well as a tax specialist who can help you understand any tax wrinkles that might apply to your situation. If you would like to discuss annuities or retirement preparations with an expert, please give us a call.
Annuities are long-term investments designed for retirement purposes. Withdrawals of taxable amounts are subject to income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Early withdrawals may be subject to withdrawal charges. Optional riders have limitations and are available for an additional cost through the purchase of a variable annuity contract. Guarantees are based on the claims paying ability of the issuing company.