Question about moving qualified funds into an annuity ?

[Tahoe Ray]

My decision, not an agent's. And from reading here, that is not the impression I get about a failed "get up and go" test.

Failing ADL tests means you're unlikely to recover unless you have an acute issue (e.g stroke).

I am talking about general declines.

It's the agent's decision about what carrier to write you with. They should lay out all appropriate options and give you pros and cons but ultimately, it comes down to what's best for the client based on our fact find.

If someone wants another carrier that isn't suitable for them, I just walk.

 

[LostDollar]

It is one of the worst. An annuity takes a lump sum creates an income, a life policy takes an income (premium) and creates a lump sum. (as you know, but for others)
.

Does this mean, for non-spousal beneficiaries, that an annuity is a worse way to pass on money than an IRA?

 

[Allen Trent]

Does this mean, for non-spousal beneficiaries, that an annuity is a worse way to pass on money than an IRA?

I would put them in the same category. Sure, a traditional IRA has a tax bill on the entire account value & a NQ Annuity only has a tax due on the gain at death. However, that is merely because you got to put the money in the 401k/IRA pre-tax & the NQ Annuity was funded with already taxed money. Also, non spouse living beneficiaries have 10 years to empty an inherited IRA while NQ annuity only has up to 5 years to empty an inherited NQ annuity.

The point of NQ annuity is that they can be great places to have money that will likely be needed for future income, but currently for money likely not needed life insurance or even after tax stock/bond account can be better to receive at death than a NQ Annuity that has a tax bill on the gains.

This is also even more true for the nearly 70% of seniors that don't pay any federal income taxes & are in the 0% tax bracket. Holding a NQ Annuity you are not using to live on while deferring taxes on the annual interest at 0% tax to let it build the deferred gains for a heir to likely owe a 15/20/30% income tax rate doesn't make a lot of sense

 

[scagnt83]

Does this mean, for non-spousal beneficiaries, that an annuity is a worse way to pass on money than an IRA?

This all comes down to your priorities and goals. As I said before, some people care more about what the benefits of the annuity do for them while living. Others care more about minimizing taxes when passing funds to loved ones.

Are you more concerned with benefits to you while living? Or making the tax bill as low as possible for the kids? Obviously you want to minimize taxes as much as possible for beneficiaries... but is that more important than what benefits you while living? Your choice. No advisor can answer that.

Is it a bad thing your kids pay a 15% or 20% tax on their inheritance? Maybe that is something you care about, maybe not. Is it worth it for YOU to pay taxes on that money so your kids dont have to??

Albeit you can probably pay a lower tax rate than your kids... but YOU are paying it FOR THEM. You are taking away living expenses from your retirement to lower your kids tax bill. I am a huge fan of creating generational wealth... but its also easy to lose sight of the bigger picture and get caught up in the "best" conundrum. You want what is best for all sides of the situation... another word for that is "perfect". Perfect doesnt exist. Everything has pros/cons, you just have to weigh them for your needs and goals. There is no real right or wrong answer on a lot of this.

 

[scagnt83]

..... than an IRA?

An IRA is not a bad way to pass on money. ROTH conversions rarely make financial sense unless stretched out over a long number of years. There is a recent thread about this in the annuity section here.

Contrary to popular belief, mandatory RMDs do not deplete your IRA to nothing. In fact, you will still see an overall increase in account balance well into your 90s with a 5% rate of return. Plus you will have the NQ account that excess RMDs can be contributed to.

Then your non-spouse beneficiary will have 10 years to take withdrawals and pay taxes on the funds.

Sure, ROTH or Life Insurance is a better vehicle if your ONLY concern is passing on the money.

But you have to consider the tax hit your account taxes with the ROTH conversion. That is why dragging it out over a long time span makes the most tax sense.

Use this calculator to see the impact of RMDs on your IRA account balance.
https://www.voya.com/tool/rmd-calculator

 

[Tahoe Ray]

Then your non-spouse beneficiary will have 10 years to take withdrawals and pay taxes on the funds.

Most withdraw that shit day 1 unless they are inheriting a few 7 figure IRAs/annuities.

 

[LostDollar]

Contrary to popular belief, mandatory RMDs do not deplete your IRA to nothing.

(Caveat, not an agent.)

I disagree with that statement.

 

[LostDollar]

I am talking about general declines.

As was I.

Failing ADL tests means you're unlikely to recover unless you have an acute issue (e.g stroke).

I did not realize "Timed and Observed Get Up and Go" was an ADL test.

 

[LostDollar]

It is one of the worst. An annuity takes a lump sum creates an income, a life policy takes an income (premium) and creates a lump sum. (as you know, but for others)

Caveat, not an agent.

What is (are) the relevant conceptual approach (es) for converting a stream of income to a stream of income?

 

[scagnt83]

(Caveat, not an agent.)

I disagree with that statement.

Why? It seems you have a disconnect somewhere with this.

Use the link I provided and see the numbers for yourself, you are mistaken in your disagreement. It takes 30 seconds to run the calculator.

https://www.voya.com/tool/rmd-calculator

At age 100, with a 5% interest rate, you would still have 40% of your original IRA balance.

PLUS... you have the account the RMD payments go into. Using the above scenario, you have an average of $6k per year going into that account and accruing interest. Assuming 5% for both accounts:

You have $300k in non-IRA funds at age 100. (assuming a 15% tax on the RMDs)

You have $340k in total assets at age 100, from that one original pot of IRA money.