Annuity Question, Can it work this way in Roth?

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relativeratio
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Annuity Question, Can it work this way in Roth?

Post by relativeratio »

I am wondering. If I were to get an immediate annuity purchased by Roth money in a Roth account can I just have the annuity payment accumulate within the Roth or must the payment be payed as a distribution from the Roth? Can an immediate annuity payment just accumulate in a Roth?

Lets say the answer to question one is NO, then I would assume an immediate annuity in the Roth that must be distributed outside the Roth would be subject to early withdrawal payments if I am not yet 59 1/2 but tax free if I were 59 1/2.

I know annuities and Roth IRA are not recommended in most cases. I'd just like to know if the payments could accumulate tax free and stay in the Roth until I need them.
Rex66
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Re: Annuity Question, Can it work this way in Roth?

Post by Rex66 »

I would hope they wouldn’t bc it’s a horrible idea

You can buy annuities with Roths.

There is no good reason though to buy a distributing annuity but not distribute the money
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relativeratio
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Re: Annuity Question, Can it work this way in Roth?

Post by relativeratio »

Rex66 wrote: Fri Apr 16, 2021 7:17 am I would hope they wouldn’t bc it’s a horrible idea

You can buy annuities with Roths.

There is no good reason though to buy a distributing annuity but not distribute the money
Yes, I know most people think this. The way I see it is your getting a pay check that you can use or just let it build up tax free in your Roth until you need to spend it. I just need an accurate answer as to whether those payments can just be paid to the Roth until I need the money. Can't find an answer googling it.
Rex66
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Re: Annuity Question, Can it work this way in Roth?

Post by Rex66 »

You don’t seem to understand they just give you your money back with a SPIA for many years. You don’t seem to understand how these work. Even people who want to use insurance products would buy a deferred annuity that is later annuitizated.
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relativeratio
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Re: Annuity Question, Can it work this way in Roth?

Post by relativeratio »

Rex66 wrote: Fri Apr 16, 2021 7:33 am You don’t seem to understand they just give you your money back with a SPIA for many years. You don’t seem to understand how these work. Even people who want to use insurance products would buy a deferred annuity that is later annuitizated.
Unless you live longer than average and don't want to take risks and like the idea that the roth distributions are tax free. I doubt I will do this but I want to explore my options. I could likely keep all my money in cash and watch it erode in spending power and still have enough to make it to the end of my life. I just need to not lose after already having accumulated enough. The only thing that might bother me is FOMO but that's all mental and will not effect my standard of living.
Rex66
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Re: Annuity Question, Can it work this way in Roth?

Post by Rex66 »

No bc the majority of the money in a taxable account also would not be taxed bc again it’s a return of money mostly

They also use their own life tables which assume purchasers live longer (compare to life insurance where they do the opposite).

You don’t seem to realize that people who use these “appropriately” often would have more money in total if they invested approximately and to one a safe withdrawal rate. not guaranteed but likely.

You definitely lose purchasing power with your “plan”. It’s one reason why many recommend waiting until 70-80 before purchasing a spia.

I doubt insurance companies will allow it bc even they know it’s not suitable

You need to do some more research
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relativeratio
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Re: Annuity Question, Can it work this way in Roth?

Post by relativeratio »

My understanding is the annuity will pay out about the same whether you take an immediate annuity or a deferred annuity. If you take it later you have less life expectancy so they can pay more. So, if one took out an immediate annuity and got 50k a year and just let it accumulate in a Roth that money would go to your heirs if you died. And, if you didn't need the money for five years, you could take that $250k and buy a house and then continue receiving the 50k a year to cover living expenses. A deferred annuity would not give me that option. I'm not saying this is a brilliant strategy but I would like to know if this is allowed. I want to keep the payments in the Roth until I need them.
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relativeratio
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Re: Annuity Question, Can it work this way in Roth?

Post by relativeratio »

I know it is a terrible investment and you are only playing with your own money for the most part. I know about the taxes not being due because you are only getting your own money back for many years. It is simply a transfer of risk and not an investment. I realize 60/40 and 4% is likely to earn much more. I realize insurance companies can not sell you more then a certain amount based on your net worth. I just want to know if your payments can accumulate in your Roth or have to be distributed out of the Roth when distributions start.
Rex66
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Re: Annuity Question, Can it work this way in Roth?

Post by Rex66 »

What you are doing is the like saying the following:

I have a wart on my thumb
I want to know what saw to use to chop of my hand
I tell you , you don’t want to do that you
You keep on saying just tell me the correct saw.

Call one of the insurance companies and see if they will do it. Hopefully you realize your idea is not suitable.

The fact that you can’t Google your plan should tell you all you need to know.

You also do NOT understand deferred annuities bc your assumption is wrong.

There are several much more appropriate approaches to your concerns.

You should start a new post with more information about what you have, your plans, your fears. People will provide ideas to you.

Your current plan is horrible and irrevocable
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Stinky
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Re: Annuity Question, Can it work this way in Roth?

Post by Stinky »

relativeratio wrote: Fri Apr 16, 2021 8:43 am I know it is a terrible investment and you are only playing with your own money for the most part. I know about the taxes not being due because you are only getting your own money back for many years. It is simply a transfer of risk and not an investment. I realize 60/40 and 4% is likely to earn much more. I realize insurance companies can not sell you more then a certain amount based on your net worth. I just want to know if your payments can accumulate in your Roth or have to be distributed out of the Roth when distributions start.
I’m not thinking anyone on the Forum has a “for sure” answer for you. I certainly don’t know.

I suggest that you call some of the folks who sell immediate annuities and ask them.

Immediateannuities.com, stantheannuityman.com, blueprintincome.com, etc.

If you do find out an answer, please post back and let us know.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
pkcrafter
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Re: Annuity Question, Can it work this way in Roth?

Post by pkcrafter »

Here is a link that provides information on your idea...

https://duckduckgo.com/?q=should+you+pu ... 3-1&ia=web


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not4me
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Re: Annuity Question, Can it work this way in Roth?

Post by not4me »

relativeratio wrote: Fri Apr 16, 2021 8:43 am I just want to know if your payments can accumulate in your Roth or have to be distributed out of the Roth when distributions start.
I may not understand exactly what you are trying to accomplish, but this sentence stood out. I'll try & answer this way -- I'm not aware of any special considerations regarding distributions due to the type of investment inside the roth. Roths are a bit different in terms of when distributions MAY start or REQUIRED to start (think inherited). Are you thinking of ways that someone who inherited a roth might stretch past ordinary rules on emptying the roth? Annuities come in many flavors & I wouldn't venture to guess the options you might have when it comes to actually buying one. For example, could you buy "term certain"? So, there are rules as to taxation if a distribution is taken (see irs pub 590-b)-- I don't think it matters whether that originally came from interest, dividends, annuity payment.

Are you basically trying to lock up tight interest rate risk? Guess without knowing your situation it is hard to grasp the advantage over buying something like a 30 year treasury...any elaboration might get more ideas
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Oicuryy
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Re: Annuity Question, Can it work this way in Roth?

Post by Oicuryy »

See this old post.
viewtopic.php?p=330763#p330763

Here is an excerpt.
abceater wrote: Mon Nov 17, 2008 8:31 am What very few people have and very people know about is an immediate annuity that is inside of a Individual Retirement Account. What makes this different is that the annuity payments don't get paid to the account owner. They actually get paid to the Individual Retirement Account. When this money gets paid, there are no taxes due because it is stil within the Individual Retirement Account. Because this money stays within the Individual Retirement Account, the annuity doesn't meet the definition of an Individual Retirement Annuity. The payout does not have to be removed from the Individual Retirement Account. Therefore, in this case, the present value of the annuity must be calculated so that the value of the Individual Retirement Account can be determined so that the RMD can be determined. The payout of the annuity doesn't matter because it doesn't get paid outside of the IRA.
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David Jay
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Re: Annuity Question, Can it work this way in Roth?

Post by David Jay »

I think your other plan (MYGA) from your 6:30am thread is a much less bad idea. At least the MYGA has a termination so you can evaluate at the end of the term (3, 5, 7 ,10 years - whatever).

An SPIA is forever. If inflation spikes the value of the annuity income stream will plummet. Imagine 5% annual inflation for 30 years, your spending power is now less than 1/4 of what it was and you will have no recourse.
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Mowa
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Re: Annuity Question, Can it work this way in Roth?

Post by Mowa »

Yes your plan can work... but you’d need 2 Roth Account numbers. Once the immediate annuity is paying out, you can’t leave the proceeds in the same account to accumulate. You’d have to transfer the funds to Roth account #2.

So your essentially doing direct transfers Roth to Roth, yearly.
Alan S.
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Re: Annuity Question, Can it work this way in Roth?

Post by Alan S. »

I haven't heard of any life insurance company developing a product in which an annuitized annuity payout will be retained in the IRA and invested in another investment.

In fact, annuitization within an IRA has not been popular, as very few fixed or IRA VAs have been annuitized. In fact, there are so few that the IRS has never issued guidance on dealing with IRA basis with annuitized TIRA accounts or with RMDs for such accounts that no longer have an account balance.

The excerpt posted above referring to imputed present value calculations has never been authorized by the IRS, but the IRS has allowed unapproved improvisation to exist in dealing with RMDs.

Accordingly, even though it may largely be a bad idea to annuitize an IRA, doing so for a Roth annuity eliminates the basis and RMD issues that persist for a TIRA.

In short, the OP's original idea is not advisable, but even if it was may not be a product structure offered in the marketplace.
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celia
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Re: Annuity Question, Can it work this way in Roth?

Post by celia »

relativeratio wrote: Fri Apr 16, 2021 5:23 am I am wondering. If I were to get an immediate annuity purchased by Roth money in a Roth account can I just have the annuity payment accumulate within the Roth or must the payment be payed as a distribution from the Roth? Can an immediate annuity payment just accumulate in a Roth?
This is an interesting question I’ve not seen before. But the quote of abceater above is a good start to answering the question for this OP.

Elsewhere in his/her answer there was a reference to the IRA account custodian. This reminds me that there are special custodians that allow you to hold self-directed IRAs so you can hold things like real estate, gold, art, or annuities. (I don’t think Vanguard and Fidelity are set up to hold annuities.). I found further information by following these links:

For traditional IRAs, you would first have to roll over some TIRA money to a different custodian:
https://www.immediateannuities.com/roll ... a-or-401k/

RMDs for an IRA that holds an annuity:
https://www.kiplinger.com/article/retir ... nuity.html

RMDs not applicable to a Roth IRA holding an annuity:
https://www.thestreet.com/annuityman/an ... a-roth-ira

But as “Stan” in that post says:
In my opinion and in a perfect world, Roth IRAs should be used for pure market growth strategies
and this is how I also see it. To give another example, you can hold a bank CD in a Roth IRA but that would be a complete waste of growth possibilities with today’s 0.01% guaranteed interest rates. But there was a time around 40 years ago when CDs were paying 15%. That would be the time to lock in a long term CD for your Roth.

But talking about annuities, keep in mind the younger you are, the lower guaranteed percentage rate you would get. But if you were 90 now, an annuity in a Roth might make sense since you would be paid at a higher rate.

If you left the annuity pay-outs stay in the self-directed (annuity) Roth, you wouldn't be able to re-invest them there. You would want to roll them back to your other Roth(s) periodically so they could be re-invested.
Last edited by celia on Sat Apr 17, 2021 4:07 pm, edited 1 time in total.
livelovelaugh00
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Re: Annuity Question, Can it work this way in Roth?

Post by livelovelaugh00 »

It makes think of reinventing the wheel.
Rex66
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Re: Annuity Question, Can it work this way in Roth?

Post by Rex66 »

Beyond the issues mentioned above the reason it likely doesn’t exist is that all insurance products must pass a suitability standard. Now this is a very weak standard compared to fiduciary . Still a SPIA is for someone who needs or wants guaranteed income. This entire plan shows that’s not the case. They would likely lose any complaints/suits after the sale. So besides it being a bad idea for the OP, it’s a bad risk for the insurance company as well.
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