IRA in a Personal Pension Annuity-Opinions please?

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monicafaye
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Joined: Thu Mar 18, 2010 8:39 am
Location: San Antonio, TX

IRA in a Personal Pension Annuity-Opinions please?

Post by monicafaye »

Years ago I rolled over a traditional IRA into something called a Personal Pension Annuity (A Non-surrendable Flexible Premium Deferred Annuity). I was totally ignorant about the product at the time and when I tried to rollover the IRA to Vanguard a few years ago I found out that it was non transferable. I have just turned 59 ½ and am debating whether to begin taking monthly income from it now or wait until 70 ½ when I have to begin RMDs. The amount of the IRA is just under $70,000 and the current yield is 4.32%. The company that holds the IRA gave me a Single Premium Immediate Annuity quote of just under $300 monthly for life if taken now. I do not need the money to live on, but am wondering if it would it be better to start withdrawals now and reinvest the money in a Vanguard Index Fund that has much lower expenses than this product? I will really appreciate your opinions or suggestions. Thank you
The Wizard
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Re: IRA in a Personal Pension Annuity-Opinions please?

Post by The Wizard »

That's a 5.1% payout, so you might want to compare that to other SPIAs available to the general public, for females 59.5.
Assuming it's close to market rates, I'd be inclined to wait longer to get more inflation protection in my income stream...
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Alan S.
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Re: IRA in a Personal Pension Annuity-Opinions please?

Post by Alan S. »

Note that should you elect a life annuity from this IRA Annuity, the date you begin distributions will be considered your RMD required beginning date even though it is well before age 70. That means all the annuity payouts are treated as RMDs and therefore there is no rollover permitted to another retirement plan.

The IRS Regs are not conclusive regarding distributions period of less than your life, your life expectancy, or joint life expectancy with a beneficiary. For example, you are probably OK to elect a 10 year period and roll over those payments when received because the period certain is less than your life expectancy and the IRA annuity will be paid out prior to reaching the year you will reach 70.5. However, electing a period certain that will continue beyond 70 but still less than your life expectancy has totally uncertain RMD implications because the IRS Regs did not address this situation.

You could take non annuitized withdrawals and roll them over without a problem before the year you will reach 70.5 and of course investing in a taxable account is also no problem should you choose that approach.

While there is not much doubt, I still suggest you double check that the registration of this account confirms that it is in fact an IRA. If it were not an IRA (Annuity), then it would be approached differently.
Topic Author
monicafaye
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Joined: Thu Mar 18, 2010 8:39 am
Location: San Antonio, TX

Re: IRA in a Personal Pension Annuity-Opinions please?

Post by monicafaye »

Alan S. wrote:Note that should you elect a life annuity from this IRA Annuity, the date you begin distributions will be considered your RMD required beginning date even though it is well before age 70. That means all the annuity payouts are treated as RMDs and therefore there is no rollover permitted to another retirement plan.

The IRS Regs are not conclusive regarding distributions period of less than your life, your life expectancy, or joint life expectancy with a beneficiary. For example, you are probably OK to elect a 10 year period and roll over those payments when received because the period certain is less than your life expectancy and the IRA annuity will be paid out prior to reaching the year you will reach 70.5. However, electing a period certain that will continue beyond 70 but still less than your life expectancy has totally uncertain RMD implications because the IRS Regs did not address this situation.

You could take non annuitized withdrawals and roll them over without a problem before the year you will reach 70.5 and of course investing in a taxable account is also no problem should you choose that approach.

While there is not much doubt, I still suggest you double check that the registration of this account confirms that it is in fact an IRA. If it were not an IRA (Annuity), then it would be approached differently.
The single premium immediate annuity quote that the company mailed me has it listed as a traditional IRA. They offer five income plans. 1) Number of Years Only, 2) Life Only, 3) Number of Years and Life, 4) Joint Lives Only, 5) Number of Years and Joint Lives.
Alan S.
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Re: IRA in a Personal Pension Annuity-Opinions please?

Post by Alan S. »

Of those, only #1 would allow you to roll the distribution over, as the rest would be considered RMDs even if you annuitized now. And even for #1, you should keep the number of years to 10 or less if you want to roll the payments over to another IRA.

In addition, if you do elect to do the number of years option so you can roll payments over, you will have to be aware of the new ruling for rollovers starting Jan 1. You will then only be allowed one 60 day rollover in a 12 month period. That means you would have to arrange for the payments to be directly transferred to another IRA account since direct transfers are not counted as rollovers. Another choice if the direct transfer could not be arranged would be to take each payment and convert it to a Roth IRA. Rollovers to Roth IRAs are conversions and are also NOT subject to the rollover limitations.
Topic Author
monicafaye
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Re: IRA in a Personal Pension Annuity-Opinions please?

Post by monicafaye »

Alan S. wrote:Of those, only #1 would allow you to roll the distribution over, as the rest would be considered RMDs even if you annuitized now. And even for #1, you should keep the number of years to 10 or less if you want to roll the payments over to another IRA.

In addition, if you do elect to do the number of years option so you can roll payments over, you will have to be aware of the new ruling for rollovers starting Jan 1. You will then only be allowed one 60 day rollover in a 12 month period. That means you would have to arrange for the payments to be directly transferred to another IRA account since direct transfers are not counted as rollovers. Another choice if the direct transfer could not be arranged would be to take each payment and convert it to a Roth IRA. Rollovers to Roth IRAs are conversions and are also NOT subject to the rollover limitations.
The company representative I spoke with recommended the 15 Year and Life option. Do I understand correctly that if I chose that option I could rollover the monthly payments into a Roth IRA and leave it for my adult son with special needs?
Alan S.
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Re: IRA in a Personal Pension Annuity-Opinions please?

Post by Alan S. »

Probably not. But 15 years would put you past the RMD beginning date, and if not sooner starting at 70.5, the distributions would be RMDs and you could not roll them over to a Roth IRA or any IRA.

My prior post referenced a 10 year period certain annuity (not life or 10 years, just 10 years) because the annuity would be fully paid out before RMD age and because life expectancy was NOT part of the annuity terms, the distributions would not be RMDs when you started them as they would be if you used a life annuity, joint life annuity or life with a period certain. The Roth conversion idea was just an option to allow you to escape the one rollover rule if a direct transfer to a traditional IRA could not be arranged. If it could be arranged, with a 10 year annuity, you could have the payments automatically transferred to a TIRA, and they would not be taxable and would not be considered RMDs.

IRA annuities have very complex RMD rules. While you are ultimately responsible, it is also up to the insurance company to correctly interpret these rules for you. They should do so before you annuitize because that decision is irreversible. You should simply ask them to explain how any of their options would be treated with respect to the RMD rules.
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