Departments of the Treasury and Labor Encouraging Americans To Use Annuities

[Crabcake Johnny]

The article is highly interesting to me. As the years tick by and we possibly get to the point where we can count on living into our 90's, 401k's are gonna be in trouble.

If the average American starts saving in their 30's, it's a hard sell to say that you can save for 35 years, yet have enough to last 30 years.

I don't think there's anyone left guzzling the 1980's "you'll return 12% in mutual funds" Kool Aid.

 

[Norwayguy]

The article is highly interesting to me. As the years tick by and we possibly get to the point where we can count on living into our 90's, 401k's are gonna be in trouble.

If the average American starts saving in their 30's, it's a hard sell to say that you can save for 35 years, yet have enough to last 30 years.

I don't think there's anyone left guzzling the 1980's "you'll return 12% in mutual funds" Kool Aid.

Yes but your 401K isn't providing 100% of your retirement dollars. This is where Social Security (I hope) and Pensions (Yeah Right) kick in as well...Your also I think overlooking what the compounding can do to those contributions for 35 years.

But on the face of it you are correct that the average american will be hard pressed to get thier retirement account to last for 30 years.

I do a lot of work with Teachers and Federal Employees and it is a constant theme that they complain now about waiting until 62 to take thier pensions and almost all of them want to retire in thier 50s....They are very much amazed when you show them the $25 a paycheck they put into 403(b)s or thier TSP won't cover much of thier retirement income.

 

[Crabcake Johnny]

Worst yet - give 'em those projections as they move their money into "safe" investments with 1% returns. So you actually saved 1 million? Great! You get 10K per year...taxed.

 

[BNTRS]

I'm sorry... name one.

For starters annuities are not accounts like 401k's and IRA's they are products.

Outside of tax deferral, how about the tax deduction these products provide? Admittedly of relatively little use and grossly overstated by most "financial advisers"

If the funds are already in these accounts, you can fund them with annuities and take advantage of the benefits annuities bring to the table (read guarantees) like refund of premium death benefit or enhanced benefit death benefit. Guaranteed minimum returns, or income riders to name a few.

It's not an us vs. them debate. There's plenty of good reasons to consider funding IRA's and 401k's with annuities.

 

[retread]

For starters annuities are not accounts like 401k's and IRA's they are products.

Outside of tax deferral, how about the tax deduction these products provide? Admittedly of relatively little use and grossly overstated by most "financial advisers"

If the funds are already in these accounts, you can fund them with annuities and take advantage of the benefits annuities bring to the table (read guarantees) like refund of premium death benefit or enhanced benefit death benefit. Guaranteed minimum returns, or income riders to name a few.

It's not an us vs. them debate. There's plenty of good reasons to consider funding IRA's and 401k's with annuities.

Thank you for the explanation. I had never considered this before. I have annuities, IRAs, and 401(k)s myself. Neither of my IRAs or 401(k)s offer annuities. In my accounts, the products must be offered to be able to purchase them, and annuities are not on the list. Furthermore, I assumed that if not offered, they were not available within investment houses. Perhaps there are so few instances where they are benficial that most houses don't offer them. I will look further into this.

Coming back to my original comment, if you buy an annuity, I see no reason to move it into an IRA or 401(k). If, on the otherhand, you have funds not invested in the market and is sitting in your cash/moneymarket account of your IRA or 401(k), and it is enough to buy an annuity, a FA would sure beat the performance of MM funds. The downside to that is, if you see an opportunity and your money is tied up in a FA, you certainly wouldn't want to take a surrender penalty to take advantage of that opportunity. Perhaps you are talking about larger (>1 mil) accounts than mine.

As to funding IRAs and/or 401(k)s with annuities.... what do you mean by that? Taking the annuity payouts and buying stocks/bonds/mutual funds in your investment account(s)? Surely you don't mean that. If mean buying an annuity through your investment house, wouldn't you be limiting your product choices?

 

[Norwayguy]

Thank you for the explanation. I had never considered this before. I have annuities, IRAs, and 401(k)s myself. Neither of my IRAs or 401(k)s offer annuities. In my accounts, the products must be offered to be able to purchase them, and annuities are not on the list. Furthermore, I assumed that if not offered, they were not available within investment houses. Perhaps there are so few instances where they are benficial that most houses don't offer them. I will look further into this.

First you speak of your IRA and 401K like they are products...They are not....Your 401K and IRA are funded by a product be it a Mutual Fund, Savings accounts, CD, Stock, Bond, Annuity or whatever...All a IRA or 401K is, is the location of the tax code and set of rules governing the tax treatment of the account.

Your second statement that they do not seem to be offered by the investment houses would be because they are insurance products offered by Insurance Companies....Now some Investment houses have annuities on thier platform but I would hazard to bet the majority of thier income comes elsewhere... Doesn't mean you can't get an annuity for your IRA.

Coming back to my original comment, if you buy an annuity, I see no reason to move it into an IRA or 401(k). If, on the otherhand, you have funds not invested in the market and is sitting in your cash/moneymarket account of your IRA or 401(k), and it is enough to buy an annuity, a FA would sure beat the performance of MM funds. The downside to that is, if you see an opportunity and your money is tied up in a FA, you certainly wouldn't want to take a surrender penalty to take advantage of that opportunity. Perhaps you are talking about larger (>1 mil) accounts than mine.

You don't buy an annuity and then move it into an IRA or 401K...When you fill out the annuity application you determine the tax status at that time...Non*qualified, Qualified and further defined as IRA, Roth IRA, 403(b) etc... There is no moving done unless we are speaking of transfering of assets and then you would have to be transfering assets from one Qualified account to another.

 

[retread]

First you speak of your IRA and 401K like they are products...They are not....Your 401K and IRA are funded by a product be it a Mutual Fund, Savings accounts, CD, Stock, Bond, Annuity or whatever...All a IRA or 401K is, is the location of the tax code and set of rules governing the tax treatment of the account.

Your second statement that they do not seem to be offered by the investment houses would be because they are insurance products offered by Insurance Companies....Now some Investment houses have annuities on thier platform but I would hazard to bet the majority of thier income comes elsewhere... Doesn't mean you can't get an annuity for your IRA.



You don't buy an annuity and then move it into an IRA or 401K...When you fill out the annuity application you determine the tax status at that time...Non*qualified, Qualified and further defined as IRA, Roth IRA, 403(b) etc... There is no moving done unless we are speaking of transfering of assets and then you would have to be transfering assets from one Qualified account to another.

Thanks for the briefing, NorwayGuy! Yes, I have got to stop talking like IRAs as if they were products instead of accounts. I haven't bought an annuity in too many years to remember how it is done, and I haven't sold any (yet). Just learnin'

 

[BNTRS]

Ok, so IRA's come in two basic "flavors" Custodial and Self-Directed.

Most of the time when we talk about IRA's we're talking about Custodial IRA's. What it means is there is a custodian who manages the IRA (that's the $50 or whatever fee you pay for an IRA account).

If you're IRA isn't allowing annuities, as Norwayguy pointed out, it's because the custodian doesn't have that option on their list. You could, and most people who decide to fund an IRA with an annuity do, go directly to the insurance company that issues the annuity and establish your IRA with them.

As for 401k's again it's all dependent on what the plan sponsor makes available. It's also dependent on what the servicing agent wants to make available.

 

[retread]

Ok, so IRA's come in two basic "flavors" Custodial and Self-Directed.

Most of the time when we talk about IRA's we're talking about Custodial IRA's. What it means is there is a custodian who manages the IRA (that's the $50 or whatever fee you pay for an IRA account).

If you're IRA isn't allowing annuities, as Norwayguy pointed out, it's because the custodian doesn't have that option on their list. You could, and most people who decide to fund an IRA with an annuity do, go directly to the insurance company that issues the annuity and establish your IRA with them.

As for 401k's again it's all dependent on what the plan sponsor makes available. It's also dependent on what the servicing agent wants to make available.

You know, I should have known that! Maybe I did once a long time ago... There has been enough information buried in the plan information for me to have figured it out, but things don't come so easily to me these days. Thanks for putting it down simply.

Someone very smart (I think it was Einstein) said once, that if you can't explain something simply, you probably don't know it well enough... or words to that effect. You must be a genius, too.

 

[iceco1d]

I don't understand your reluctance to name a reason to place an annuity inside an IRA or 401(k). The only reason I can think of to have one inside the other is to use IRA funds (or 401(k) funds) to buy an annuity to avoid triggering a tax event. That assumes you already have money inside the IRA or 401 to nest.

On the face of my comment, I would expect you to understand I was talking about placing, putting, moving, etc. an annuity into an IRA from outside to inside.

Make sure you also cover why you would put an IRA inside a 401(k) and vice versa....

If I am wrong, tell me where I am wrong instead of trying to bully me.

OK, here you go.

Example: You are a CD investor. You do not want market risk of any type. Security Benefit's Total Interest Annuity gives a 4% first year rate, with a 1% GMIR. SBL also has a 3% GMIR in the fixed account on it's Variflex Variable Annuity.

So your advisor recommends you make a Roth IRA contribution, and purchase one of these 2 products in the Roth IRA. The annuity because the interest rate(s) are superior to CDs. The Roth IRA makes that interest tax-free for life.

Annuity in an IRA. Client wins BIG TIME.