Annuity in Rollover IRA
I’m considering buying a Flexible Premium Deferred Fixed Index Annuity inside a Rollover IRA. If I take an interest withdrawal, can I keep it in the IRA, as opposed to it becoming part of my RMD?
If I keep the Annuity outside of the IRA, can my heirs stretch out any beneficiary payment as they can from my IRA. My Estate Plan is set up to do this.
Thanks, Jerry
Permalink Submitted by Thomas Palmer on Sat, 2008-05-03 23:44
Not advisable to have annuity within IRA, get another opinion.
Permalink Submitted by Alan Spross on Sun, 2008-05-04 03:00
Two basic ways of structuring an IRA annuity are:
1) Stand alone IRA annuity with the insurer as IRA custodian. All distributions, whether RMD or otherwise are taxable under IRA rules.
2) Custodial account structure – the annuity is issued to the IRA as owner and annuity withdrawals are paid to the IRA custodial account. The account may hold other investments including a MM fund to receive the annuity withdrawals. There is no tax impact until funds are distributed out of the custodial account to the IRA owner, whether RMD or otherwise. The basic IRA RMD rules are not affected by this structure and year end valuation of the annuity must follow IRS guidelines to include any annuity fringe benefits that exceed a de minimus amount.
Therefore, under a custodial account structure, an annuity withdrawal CAN be kept in the IRA, however the RMD must still be satisfied with an IRA distribution from one or more of the IRA holdings.
I can’t see any benefit of using an annuity product in an IRA unless you plan to purchase an immediate annuity because you expect to far outlive the mortality assumptions.
Permalink Submitted by Gerald Rubin on Sun, 2008-05-04 14:37
The two reasons I’m considering this are:
1) I can get a better 1yr fixed return than a CD or MM. There’s no surrender charge after 1 yr, since I’m giving up 0.25% off the interest rate to get this feature. There are no Annual or Mgt. fees.
2) By establishing an Annuity, I understand I can add to it for sheltering assets should I be faced with litigation, etc. which I understand my IRA does not do. Although I have a Revocable Trust, I don’t believe that helps shelter assets either.
I’d appreciate being straightened out if I’m wrong.
Permalink Submitted by Bruce Steiner on Sun, 2008-05-04 17:04
Inside an IRA, an annuity is merely a form of investment, to be compared to other investments.
Outside an IRA, an annuity has various tax and nontax advantages and disadvantages compared to other investments. The extent to which they are protected from creditors varies from state to state.
Revocable trusts make sense in specific cases, and are popular in some states, notably California. But in most cases they’re not worth the effort. They are tax-neutral (in other words, they don’t save or cost anything in taxes), and in most cases they don’t save enough effort in the estate administration to make them worthwhile. The biggest problem is that they often serve as a distraction. In other words, there are so many issues to consider in the estate planning process that once someone gets distracted by the concept of a revocable trust, he/she may never get to deal with the more important issues.
Permalink Submitted by Gerald Rubin on Sun, 2008-05-04 21:24
Are you saying that assets in an Annuity, if placed inside an IRA, loses creditor protection? Jerry
Permalink Submitted by Bruce Steiner on Sun, 2008-05-04 23:19
There are two separate issues: the degree of protection that IRAs have from creditors (regardless of how they are invested), and the degree of protection that annuities (outside of IRAs) have from creditors. The answer to each of these questions varies from state to state.
Permalink Submitted by Gerald Rubin on Mon, 2008-05-05 01:35
Thanks, I guess I need to talk to a Florida Attorney. Jerry
Permalink Submitted by Bruce Steiner on Mon, 2008-05-05 01:47
You have been 🙂
Instead of working back from a proposed solution, I think it would be more efficient for you to tell your lawyer the facts of your situation and your objectives, and let your lawyer recommend how you can best accomplish your objectives given the specifics of your situation.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Alan Spross on Mon, 2008-05-05 01:48
Jerry,
FL provides good asset protection of IRAs and annuities outside of IRAs. See att’d:
http://www.assetprotectionbook.com/state_resources.htm