Take the entire IRA SPIA (annuity) as income?

[gasdoc]

I am planning to eventually purchase a SPIA (annuity) or deferred income annuity. Let's say I purchased a SPIA in a traditional or Roth IRA. Let's say also that in some years the SPIA throws off more income than is needed to pay expenses. Can the SPIA be designed to throw the income back into the traditional IRA or Roth IRA, so that one can still have flexibility as to how much is withdrawn from taxable vs after tax accounts for tax planning purposes? Thanks.

gasdoc

[ResearchMed]

I am planning to eventually purchase a SPIA (annuity) or deferred income annuity. Let's say I purchased a SPIA in a traditional or Roth IRA. Let's say also that in some years the SPIA throws off more income than is needed to pay expenses. Can the SPIA be designed to throw the income back into the traditional IRA or Roth IRA, so that one can still have flexibility as to how much is withdrawn from taxable vs after tax accounts for tax planning purposes? Thanks.

gasdoc

Do you mean some sort of variable annuity rather than an SPIA?

An SPIA would be a single payment immediate annuity, which would typically pay the same per month/year, unless you choose some sort of inflation-type adjustment. Either way, there is no "more income" one month than the previous (unless one has just jumped into a "next" adjustment upward per the original plan.

A deferred income annuity is usually the same thing, but it starts later than the payment is made. But again, unless you've got some sort of variable annuity, there aren't monthly fluctuations once it starts.

What I don't know for sure is if an SPIA purchased within an IRA (or similar) generates the monthly/annual income withIN the IRA, and one removes money from the IRA as desired, or if the SPIA payments automatically arrive as taxable income.
(I guess we'll be finding out about this in a few more years!)

RM

[fyre4ce]

What I don't know for sure is if an SPIA purchased within an IRA (or similar) generates the monthly/annual income withIN the IRA, and one removes money from the IRA as desired, or if the SPIA payments automatically arrive as taxable income.
(I guess we'll be finding out about this in a few more years!)

I'd be interested to hear the answer to this as well. I always pictured the annuity payments as arriving as taxable income, but I don't know of a reason why it needs to be this way. I bet a call to an insurance agent who sells annuities would provide an answer, though.

[Silk McCue]

My brother-in-law Inherited an IRA from his brother this past year. A 10 year Annuity had been previously purchased within the IRA and the monthly payouts are deposited back into the IRA. The original owner would withdraw those funds monthly for living expenses and of course pay taxes on the distribution.

Cheers

[rgs92]

As far as I know, the SPIA payments are always distributed as income and are reported in a 1099R as distributions. They do not exist within a container account like an IRA. I have never heard of this and the ones I have from major insurance companies never even presented this as a possiblity.
I'm just guessing, but since IRS rules on buying an SPIA using IRA funds requires immediate distributions of all income.
SPIAs have tax advantages for an IRA:
1. You avoid the 10% pre-age-59.5 penalty on a lifetime SPIA.
2. It satisfies all RMD requirements; you never need to be concerned with it.
3. Although you can't have joint life, you can have a spouse as a joint beneficiary to a specific age, like 25 years in the future (I don't know the exact details on the computation. There was some sort of 2005 IRS ruling on this.)

So these tax advantages would be nullified it seems by being able to return the income to the IRA, so I think it's impossible.

I think if you use a Roth IRA to buy and SPIA, the distributions are tax free, I have not studied this and I never did this, so I am shaky on this point.

Try calling Fidelity, Vanguard, or Brighthouse, major SPIA providers. (At least Vanguard was when I talked to them about it years ago.)

[gasdoc]

My brother-in-law Inherited an IRA from his brother this past year. A 10 year Annuity had been previously purchased within the IRA and the monthly payouts are deposited back into the IRA. The original owner would withdraw those funds monthly for living expenses and of course pay taxes on the distribution.

Cheers

Thanks! That is probably how I would probably want to set it up. I would want to have the steady stream of guaranteed money coming into the IRA, but in some years, I might want to take more or less income than what the annuity would provide.

gasdoc

[gasdoc]

I am planning to eventually purchase a SPIA (annuity) or deferred income annuity. Let's say I purchased a SPIA in a traditional or Roth IRA. Let's say also that in some years the SPIA throws off more income than is needed to pay expenses. Can the SPIA be designed to throw the income back into the traditional IRA or Roth IRA, so that one can still have flexibility as to how much is withdrawn from taxable vs after tax accounts for tax planning purposes? Thanks.

gasdoc

Do you mean some sort of variable annuity rather than an SPIA?

An SPIA would be a single payment immediate annuity, which would typically pay the same per month/year, unless you choose some sort of inflation-type adjustment. Either way, there is no "more income" one month than the previous (unless one has just jumped into a "next" adjustment upward per the original plan.

A deferred income annuity is usually the same thing, but it starts later than the payment is made. But again, unless you've got some sort of variable annuity, there aren't monthly fluctuations once it starts.

What I don't know for sure is if an SPIA purchased within an IRA (or similar) generates the monthly/annual income withIN the IRA, and one removes money from the IRA as desired, or if the SPIA payments automatically arrive as taxable income.
(I guess we'll be finding out about this in a few more years!)

RM

No, I am speaking of a guaranteed steady income stream. But some years, I might want to recognize more or less income for tax planning purposes.

gasdoc

[gasdoc]

As far as I know, the SPIA payments are always distributed as income and are reported in a 1099R as distributions. They do not exist within a container account like an IRA. I have never heard of this and the ones I have from major insurance companies never even presented this as a possiblity.
I'm just guessing, but since IRS rules on buying an SPIA using IRA funds requires immediate distributions of all income.
SPIAs have tax advantages for an IRA:
1. You avoid the 10% pre-age-59.5 penalty on a lifetime SPIA.
2. It satisfies all RMD requirements; you never need to be concerned with it.
3. Although you can't have joint life, you can have a spouse as a joint beneficiary to a specific age, like 25 years in the future (I don't know the exact details on the computation. There was some sort of 2005 IRS ruling on this.)

So these tax advantages would be nullified it seems by being able to return the income to the IRA, so I think it's impossible.

I think if you use a Roth IRA to buy and SPIA, the distributions are tax free, I have not studied this and I never did this, so I am shaky on this point.

Try calling Fidelity, Vanguard, or Brighthouse, major SPIA providers. (At least Vanguard was when I talked to them about it years ago.)

Hmm. This brings up more concerns. So you are saying that you can't have a joint annuity if purchased from IRA funds? This is new news to me. Are you sure?

gasdoc

[rgs92]

You will have reported income on your 1099R for every monthly income distribution.
It's complicated. You may be able to if you are both over 59.5. I would ask Fidelity. Call their annuity dept.
It has to do with the fact that the IRA funding it is individual.

And the rules about having it qualify for freedom from RMDs ever makes it complicated for joint annuitants. Tell Fidelity how you want to structure it (who is involved as beneficiaries or joint annuitants and their ages and they will tell you how much you can get and what happens if one of you dies).

It's hard to figure out on your own and what you are allowed to do, but they know how to do it.

You can have both people on the SPIA, and the payments will continue to either of the surviving owners, so yes it is effectively joint. But whether it continues for life for a survivor is sometimes a question. Just ask them. There are complicated IRS rules that the insurance companies need to follow.

[gasdoc]

You will have reported income on your 1099R for every monthly income distribution.

So is it not possible to have the distributions paid back into your IRA account- I guess as a rollover? Thanks.

gasdoc

[gasdoc]

As far as I know, the SPIA payments are always distributed as income and are reported in a 1099R as distributions. They do not exist within a container account like an IRA. I have never heard of this and the ones I have from major insurance companies never even presented this as a possiblity.
I'm just guessing, but since IRS rules on buying an SPIA using IRA funds requires immediate distributions of all income.
SPIAs have tax advantages for an IRA:
1. You avoid the 10% pre-age-59.5 penalty on a lifetime SPIA.
2. It satisfies all RMD requirements; you never need to be concerned with it.
3. Although you can't have joint life, you can have a spouse as a joint beneficiary to a specific age, like 25 years in the future (I don't know the exact details on the computation. There was some sort of 2005 IRS ruling on this.)

So these tax advantages would be nullified it seems by being able to return the income to the IRA, so I think it's impossible.

I think if you use a Roth IRA to buy and SPIA, the distributions are tax free, I have not studied this and I never did this, so I am shaky on this point.

Try calling Fidelity, Vanguard, or Brighthouse, major SPIA providers. (At least Vanguard was when I talked to them about it years ago.)

I found this line in a MarketWatch article today: "Lifetime income annuities can also be set up to pay joint life with your spouse, even though it's in your personal IRA."

gasdoc

[rgs92]

Yep, I think that will work if you are both over 59.5.

[ResearchMed]

As far as I know, the SPIA payments are always distributed as income and are reported in a 1099R as distributions. They do not exist within a container account like an IRA. I have never heard of this and the ones I have from major insurance companies never even presented this as a possiblity.
I'm just guessing, but since IRS rules on buying an SPIA using IRA funds requires immediate distributions of all income.
SPIAs have tax advantages for an IRA:
1. You avoid the 10% pre-age-59.5 penalty on a lifetime SPIA.
2. It satisfies all RMD requirements; you never need to be concerned with it.
3. Although you can't have joint life, you can have a spouse as a joint beneficiary to a specific age, like 25 years in the future (I don't know the exact details on the computation. There was some sort of 2005 IRS ruling on this.)

So these tax advantages would be nullified it seems by being able to return the income to the IRA, so I think it's impossible.

I think if you use a Roth IRA to buy and SPIA, the distributions are tax free, I have not studied this and I never did this, so I am shaky on this point.

Try calling Fidelity, Vanguard, or Brighthouse, major SPIA providers. (At least Vanguard was when I talked to them about it years ago.)

I found this line in a MarketWatch article today: "Lifetime income annuities can also be set up to pay joint life with your spouse, even though it's in your personal IRA."

gasdoc

Our only planning experience (not yet implemented) is for TIAA Traditional Annuity within a 403b, when annuitized.

The 403b is, of course, for just one spouse. However, there are several choices for a joint life annuity, with the differences including what percentage goes to the survivor of the two, etc. Obviously, the survivor could be the spouse who did not have that 403b account.

I've just assumed that when we are comparing the TIAA annuity payout rates with those in, say, www.immediateannuities.com, that the commercially available SPIAs could also be joint even if held in an IRA... but that was, as stated, an assumption.

RM

[rgs92]

Go here and try calling them:
https://www.fidelity.com/annuities/imme ... s/overview

(800-493-3004)

[Oicuryy]

Internal Revenue Code Section 408(a) defines a traditional Individual Retirement Account. Section 408(b) defines a traditional Individual Retirement Annuity.

A section 408(b) IRAnnuity is what people usually get when they buy an annuity with IRA money. It is what insurance companies promote. Payouts from an immediate IRAnnuity are made directly to the IRA owner, are considered withdrawals from that IRA and meet the RMD requirements for that IRA.

Apparently Silk McCue's brother-in-law's brother bought an immediate annuity inside a section 408(a) IRAccount. This is the first I've heard of anyone actually doing that. (We talked about them way back in 2008.) I am curious to know the name of the IRA custodian and the name of the insurance company that issued the contract. How does he determine the value of the annuity when he calculates his RMD?

gasdoc, if you decide to look into holding an SPIA in a 408(a) IRAccount let us know what you find out.

Ron

[Alan S.]

Internal Revenue Code Section 408(a) defines a traditional Individual Retirement Account. Section 408(b) defines a traditional Individual Retirement Annuity.

A section 408(b) IRAnnuity is what people usually get when they buy an annuity with IRA money. It is what insurance companies promote. Payouts from an immediate IRAnnuity are made directly to the IRA owner, are considered withdrawals from that IRA and meet the RMD requirements for that IRA.

Apparently Silk McCue's brother-in-law's brother bought an immediate annuity inside a section 408(a) IRAccount. This is the first I've heard of anyone actually doing that. (We talked about them way back in 2008.) I am curious to know the name of the IRA custodian and the name of the insurance company that issued the contract. How does he determine the value of the annuity when he calculates his RMD?

gasdoc, if you decide to look into holding an SPIA in a 408(a) IRAccount let us know what you find out.

Ron

Good points.
Strangely enough, you cannot locate any life insurance companies promoting IRA annuities in collaboration with non life companies such that SPIA IRA annuity payments are directly transferred to another account which would prevent 1099R reported distribution of taxable income.

There is no reason such an arrangement would violate IRS rules, but these life insurers apparently have no interest in marketing this setup. As far as I know, IRA annuities are being issued as separate contract IRA accounts, not as an investment underwritten by a life company within a standard IRA. There is likely little demand for such a product, and you cannot find any such arrangement being marketed by any life company. Just google searched for an hour and found nothing.

Possibly contributing to this situation is the complex RMD requirements for annuity and DB plans in the IRS Regs. These regs are mostly devoted to eliminating the chance that any annuity structure could be used to delay the distribution of RMDs, but one of the rules is that if you receive SPIA TIRA distributions at any age when the annuity is written for life or a period breaching age 72 (RMD inception), these payments are treated as RMDs and are not eligible for rollover as a result.

Since any actual SPIA IRA distributions are subject to the one rollover limit, you could only roll one such distribution per year over to another IRA even if the RMD Regs were not triggered. Therefore, you would need a direct IRA transfer setup to move the payments to another IRA to avoid current taxable distributions. Apparently no life company offers this facility or even wants to mention this option.

Roth IRA annuities are a better place to offer this since all the RMD issues are avoided.
Perhaps with the current promotions of annuity products in qualified plans, a company will develop something for IRAs in the process.

If anyone knows a life agent, perhaps they could get more in depth info on this subject.

[Silk McCue]

...

Apparently Silk McCue's brother-in-law's brother bought an immediate annuity inside a section 408(a) IRAccount. This is the first I've heard of anyone actually doing that. (We talked about them way back in 2008.) I am curious to know the name of the IRA custodian and the name of the insurance company that issued the contract. How does he determine the value of the annuity when he calculates his RMD?
Ron

Edward Jones is the custodian and the SPIA is with American General Life. I do know that Edward Jones is listed on the Annuity contract with American General. Edward Jones told my BIL what the RMD is for this year but do not know how they calculated it.

Cheers

[tj]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

[Alan S.]

...

Apparently Silk McCue's brother-in-law's brother bought an immediate annuity inside a section 408(a) IRAccount. This is the first I've heard of anyone actually doing that. (We talked about them way back in 2008.) I am curious to know the name of the IRA custodian and the name of the insurance company that issued the contract. How does he determine the value of the annuity when he calculates his RMD?
Ron

Edward Jones is the custodian and the SPIA is with American General Life. I do know that Edward Jones is listed on the Annuity contract with American General. Edward Jones told my BIL what the RMD is for this year but do not know how they calculated it.

Cheers

The RMD will be what the annual SPIA distribution is, and will not satisfy any portion of the RMD for any other IRA accounts. This assumes that the SPIA structure does not violate any of the RMD Regs such as having a period certain that lasts too long.

So if EJ quoted an RMD any different than the annual distribution, that would require further explanation.
Exception applies for the year the SPIA is purchased.

[gasdoc]

Go here and try calling them:
https://www.fidelity.com/annuities/imme ... s/overview

(800-493-3004)

Just did, and got a quote for a joint annuity held within an IRA. He said one would have to take it as income when distributed.

gasdoc

[Alan S.]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

A Roth SPIA distribution follows the Roth IRA ordering rules. If any owned Roth is qualified, all are qualified and tax free. If not yet qualified, distributions come first from Roth regular contribution basis (tax free) and conversion basis starting with oldest conversions. Earnings come out last.

The Roth custodian does not know the taxable amount since it involves factoring in all owned Roth IRAs. The owner is responsible for tracking the IRA basis for tax reporting.

[gasdoc]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

Yes. distributions from a Roth IRA would be tax free.

gasdoc

[gasdoc]

Does anyone have an opinion on what the ideal % would be that would go to the surviving spouse? The fractions run from 50% to 100% after the first spouse passes. DW and I thought a 2/3 survivorship percentage would be fine, since expenses would drop after the first spouse passes. Thoughts or opinions? In other words, $100,000 per year would drop to $67,000 per year after the first person passes.

gasdoc

[Silk McCue]

The RMD will be what the annual SPIA distribution is, and will not satisfy any portion of the RMD for any other IRA accounts. This assumes that the SPIA structure does not violate any of the RMD Regs such as having a period certain that lasts too long.

So if EJ quoted an RMD any different than the annual distribution, that would require further explanation.
Exception applies for the year the SPIA is purchased.

Thanks Alan. I will double check with my BIL so that he can make certain he is being given proper guidance from EJ.

Cheers

[Dontridetheindexdown]

gasdoc,

Here is our planned approach (currently aged 69+66) to tax-deferred investments:

We have evaluated annuities (100% to survivor) both level and inflation adjusted.

We have also evaluated RMDs.

Instead, each of us plan to take 30 year level payments from our tax-deferred investments beginning the year we each turn 72.

This will not only satisfy the RMD, we will also receive more each month, for 360 months, than we would with either annuities or RMDs.

If either of us expires, their tax-deferred will be inherited and added to the survivor's tax-deferred.

We will cheerfully pay tax on the level payments (including IRMAA if required) and invest the remainder in our taxable investments.

We retired on "mailbox money" - Social Security, defined pensions, and taxable SPIA for wife, to compensate for pension reductions if she survives me.

Our investments, taxable, tax-deferred, and ROTH, serve as insurance against costs of home-based services, assisted living, and higher levels of care.

If you are considering annuities, we would suggest 100% to survivor is imperative based on tax liability.

For many of us on this forum, the tax liability for a single filer with half the joint income is significantly higher than most people imagine.

In our case, if either of us survives the other, the relict (what a delicious term!) will not only be in a higher tax bracket, but also pay IRMAA.

I know of many relicts who, the year after filing jointly as a widow or widower, were absolutely shocked at how much tax a single filer pays!

[Oicuryy]

Edward Jones is the custodian and the SPIA is with American General Life. I do know that Edward Jones is listed on the Annuity contract with American General. Edward Jones told my BIL what the RMD is for this year but do not know how they calculated it.

Cheers

Thank you for the update. Good to know it can be done.

Ron

[rgs92]

I never heard the term relict, but it seems useful now that I looked it up:
a surviving species of an otherwise extinct group of organisms

I never know what new thing I will learn on Bogleheads. Thanks for that.

[gasdoc]

gasdoc,

Here is our planned approach (currently aged 69+66) to tax-deferred investments:

We have evaluated annuities (100% to survivor) both level and inflation adjusted.

We have also evaluated RMDs.

Instead, each of us plan to take 30 year level payments from our tax-deferred investments beginning the year we each turn 72.

This will not only satisfy the RMD, we will also receive more each month, for 360 months, than we would with either annuities or RMDs.

If either of us expires, their tax-deferred will be inherited and added to the survivor's tax-deferred.

We will cheerfully pay tax on the level payments (including IRMAA if required) and invest the remainder in our taxable investments.

We retired on "mailbox money" - Social Security, defined pensions, and taxable SPIA for wife, to compensate for pension reductions if she survives me.

Our investments, taxable, tax-deferred, and ROTH, serve as insurance against costs of home-based services, assisted living, and higher levels of care.

If you are considering annuities, we would suggest 100% to survivor is imperative based on tax liability.

For many of us on this forum, the tax liability for a single filer with half the joint income is significantly higher than most people imagine.

In our case, if either of us survives the other, the relict (what a delicious term!) will not only be in a higher tax bracket, but also pay IRMAA.

I know of many relicts who, the year after filing jointly as a widow or widower, were absolutely shocked at how much tax a single filer pays!

Thank you. The tax argument is persuasive.

gasdoc

[Silk McCue]

gasdoc,

Here is our planned approach (currently aged 69+66) to tax-deferred investments:

'...

We will cheerfully pay tax on the level payments (including IRMAA if required) and invest the remainder in our taxable investments.

...

Have you considered Roth conversions of the remainder that would otherwise be invested in your Taxable accounts? No additional tax expense for doing so and you avoid ongoing taxes due to dividends and capital gains over the 30 year plan horizon.

Cheers

[gr7070]

Would seem to me that one is buying way too much SPIA if this is a likely enough occurrence to happen often. Especially so if this is a concern beyond the first handful of years of the SPIA as living costs inflate.

I'm not a forfeit the game type, though.

[gasdoc]

Would seem to me that one is buying way too much SPIA if this is a likely enough occurrence to happen often. Especially so if this is a concern beyond the first handful of years of the SPIA as living costs inflate.

I'm not a forfeit the game type, though.

I don't believe the above quote was for an annuity. I think it was for the author's alternative "planned approach," right?

gasdoc

[Dontridetheindexdown]

Have you considered Roth conversions of the remainder that would otherwise be invested in your Taxable accounts? No additional tax expense for doing so and you avoid ongoing taxes due to dividends and capital gains over the 30 year plan horizon.

Cheers

Wow, excellent tactic!

During these pre-RMD years, we do convert an amount to Roth each year.

You are 100% correct, as long as the RMD is taken first each year, we could continue to do Roth conversions.

Thank you!

[gr7070]

Would seem to me that one is buying way too much SPIA if this is a likely enough occurrence to happen often. Especially so if this is a concern beyond the first handful of years of the SPIA as living costs inflate.

I'm not a forfeit the game type, though.

I don't believe the above quote was for an annuity. I think it was for the author's alternative "planned approach," right?

gasdoc

Not quite sure what you're referring to.

What I mean is that if your annual spending is likely to not exceed your SPIA payout every year you are buying way too much annuity.

Buy less annuity; have a lower floor of guaranteed paid expenses. Take ever so slightly more risk buy keeping a little more of your net worth in your invested portfolio, whatever the AA, instead of sending quite so much to the insurance company.

[gasdoc]

Would seem to me that one is buying way too much SPIA if this is a likely enough occurrence to happen often. Especially so if this is a concern beyond the first handful of years of the SPIA as living costs inflate.

I'm not a forfeit the game type, though.

I don't believe the above quote was for an annuity. I think it was for the author's alternative "planned approach," right?

gasdoc

Not quite sure what you're referring to.

What I mean is that if your annual spending is likely to not exceed your SPIA payout every year you are buying way too much annuity.

Buy less annuity; have a lower floor of guaranteed paid expenses. Take ever so slightly more risk buy keeping a little more of your net worth in your invested portfolio, whatever the AA, instead of sending quite so much to the insurance company.

I was saying that the author saying she will do Roth conversions of the excess is not actually using a SPIA.
So there is no SPIA to downsize. She is just taking level disbursements from her IRA, and if it is too much, doing Roth conversions with the remainder. At least that was my interpretation. But since it is not actually an annuity, just 30 years worth of disbursements from her IRA, she doesn't have the longevity insurance that the SPIA would otherwise provide, so not apples to apples comparison.

gasdoc

[gr7070]

Would seem to me that one is buying way too much SPIA if this is a likely enough occurrence to happen often. Especially so if this is a concern beyond the first handful of years of the SPIA as living costs inflate.

I'm not a forfeit the game type, though.

I don't believe the above quote was for an annuity. I think it was for the author's alternative "planned approach," right?

gasdoc

Not quite sure what you're referring to.

What I mean is that if your annual spending is likely to not exceed your SPIA payout every year you are buying way too much annuity.

Buy less annuity; have a lower floor of guaranteed paid expenses. Take ever so slightly more risk buy keeping a little more of your net worth in your invested portfolio, whatever the AA, instead of sending quite so much to the insurance company.

I was saying that the author saying she will do Roth conversions of the excess is not actually using a SPIA.
So there is no SPIA to downsize. She is just taking level disbursements from her IRA, and if it is too much, doing Roth conversions with the remainder. At least that was my interpretation. But since it is not actually an annuity, just 30 years worth of disbursements from her IRA, she doesn't have the longevity insurance that the SPIA would otherwise provide, so not apples to apples comparison.

gasdoc

No idea what author you're referring to, nor what quote you mention - the only thing you quoted there was my post.

My reply was to your original post. One is buying too much SPIA if they're not likely to spend the output.

[gasdoc]

Would seem to me that one is buying way too much SPIA if this is a likely enough occurrence to happen often. Especially so if this is a concern beyond the first handful of years of the SPIA as living costs inflate.

I'm not a forfeit the game type, though.

I don't believe the above quote was for an annuity. I think it was for the author's alternative "planned approach," right?

gasdoc

Not quite sure what you're referring to.

What I mean is that if your annual spending is likely to not exceed your SPIA payout every year you are buying way too much annuity.

Buy less annuity; have a lower floor of guaranteed paid expenses. Take ever so slightly more risk buy keeping a little more of your net worth in your invested portfolio, whatever the AA, instead of sending quite so much to the insurance company.

I was saying that the author saying she will do Roth conversions of the excess is not actually using a SPIA.
So there is no SPIA to downsize. She is just taking level disbursements from her IRA, and if it is too much, doing Roth conversions with the remainder. At least that was my interpretation. But since it is not actually an annuity, just 30 years worth of disbursements from her IRA, she doesn't have the longevity insurance that the SPIA would otherwise provide, so not apples to apples comparison.

gasdoc

No idea what author you're referring to, nor what quote you mention - the only thing you quoted there was my post.

My reply was to your original post. One is buying too much SPIA if they're not likely to spend the output.

So sorry! I thought you were responding to one of the other posts where the author was not actually using a SPIA, but talked about doing Roth conversions with the money they did not need. To clarify my original post, the SPIA matches my expected expenses in retirement. However, there may be years where I would rather take money from a Roth or from my taxable account rather than take the entire SPIA amount as income from the IRA annuity. Thanks for clarifying!

gasdoc

[gr7070]

So sorry! ...

To clarify my original post, the SPIA matches my expected expenses in retirement. However, there may be years where I would rather take money from a Roth or from my taxable account rather than take the entire SPIA amount as income from the IRA annuity. Thanks for clarifying!

gasdoc

No worries!

Understood on your situation. I'm saying the SPIA should be below the low range of expenses. One does not need that safe of a floor. You're giving away way too much portfolio, way too much inheritance, way too much risk (you can accept slightly more risk), etc.

Decrease the SPIA and you're still set for life with out the issue you're creating and keeping those other benefits for you and heirs I mention.

I'm not opposed to a SPIA. Just one that's too big.

You'll have SS, an appropriate SPIA and a proper portfolio. You're good.

[gasdoc]

So sorry! ...

To clarify my original post, the SPIA matches my expected expenses in retirement. However, there may be years where I would rather take money from a Roth or from my taxable account rather than take the entire SPIA amount as income from the IRA annuity. Thanks for clarifying!

gasdoc

No worries!

Understood on your situation. I'm saying the SPIA should be below the low range of expenses. One does not need that safe of a floor. You're giving away way too much portfolio, way too much inheritance, way too much risk (you can accept slightly more risk), etc.

Decrease the SPIA and you're still set for life with out the issue you're creating and keeping those other benefits for you and heirs I mention.

I'm not opposed to a SPIA. Just one that's too big.

You'll have SS, an appropriate SPIA and a proper portfolio. You're good.

I don't disagree with any of that. My SPIA will represent a minimally acceptable lifestyle.

gasdoc

[Dottie57]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

i believe an SPIA within a Roth IRA is tax free.

[gasdoc]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

i believe an SPIA within a Roth IRA is tax free.

Yes, that is my understanding as well.

gasdoc

[Alan S.]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

i believe an SPIA within a Roth IRA is tax free.

Yes, that is my understanding as well.

gasdoc

Almost always tax free. Almost always penalty free. But there are a couple rare exceptions:

1) Exception would be an SPIA with a very short period certain draining the Roth before it became qualified. Earnings would then be taxable. These are extremely rare.
2) Another issue is the 10% penalty on conversions not held 5 years and you are under 59.5. For example, your only Roth is established by a taxable conversion, then you purchase a Roth SPIA. The first annuity dollars out will be the conversion money, and those incur the 10% penalty under the ordering rules for the 5 year holding period if under 59.5.

[gasdoc]

I'm curious. I assumed that using Roth funds to buy an SPIA would cause all the payments to be tax free, but perhaps I'm wrong.

i believe an SPIA within a Roth IRA is tax free.

Yes, that is my understanding as well.

gasdoc

Almost always tax free. Almost always penalty free. But there are a couple rare exceptions:

1) Exception would be an SPIA with a very short period certain draining the Roth before it became qualified. Earnings would then be taxable. These are extremely rare.
2) Another issue is the 10% penalty on conversions not held 5 years and you are under 59.5. For example, your only Roth is established by a taxable conversion, then you purchase a Roth SPIA. The first annuity dollars out will be the conversion money, and those incur the 10% penalty under the ordering rules for the 5 year holding period if under 59.5.

Thank you for the clarification.

gasdoc

[gasdoc]

Well- I just purchased my first SPIA- actually a deferred income annuity, joint, with 67% going to the surviving spouse, and set to begin payouts in about 5 years. I feel neutral. DW, who is more conservative than me, feels really good about it. For me, it is an opportunity to invest more aggressively with the remaining portfolio since our base needs will be met indefinitely.

gasdoc

[tj]

Well- I just purchased my first SPIA- actually a deferred income annuity, joint, with 67% going to the surviving spouse, and set to begin payouts in about 5 years. I feel neutral. DW, who is more conservative than me, feels really good about it. For me, it is an opportunity to invest more aggressively with the remaining portfolio since our base needs will be met indefinitely.

gasdoc

How did you decide which vendor to use? How many quotes did you get?

[gasdoc]

Well- I just purchased my first SPIA- actually a deferred income annuity, joint, with 67% going to the surviving spouse, and set to begin payouts in about 5 years. I feel neutral. DW, who is more conservative than me, feels really good about it. For me, it is an opportunity to invest more aggressively with the remaining portfolio since our base needs will be met indefinitely.

gasdoc

How did you decide which vendor to use? How many quotes did you get?

I contacted two brokers- Fidelity and immediateannuities.com. I found that Fidelity had slightly better pricing when they shared the same insurance company, although immediateannuities.com had access to more insurance companies. I went with a top name from Fidelity.

gasdoc