ROTH annuity options

[DHK]

PS— as much as I love Tom Hegna materials, I am not seeing a big need for a SPIA based on information provided, especially considering the record low interest rate & longer mortality rates priced in current SPIA offerings. Might be able to use an income rider on a FIA for some of that, if income becomes a need

The NQ SPIAs was to create largely tax-exempt income instead of trying to do a Roth conversion, since SPIAs have the exclusion ratio which is the only part subject to taxation per year.

Income riders on NQ contracts, I just assume, are 100% taxable, particularly after the original principal/basis has been paid out.

Just a tax-play that may fit the situation plus spread it out over a period of years rather than a large mid-6 figure conversion in one year to a Roth.

 

[DHK]

Side note—I would be shocked if her current account is charging her 2% in annual fees

My RIA can charge as high as 1.95% when you take all the fees into account:
- Custodian fees (.20% basis points)
- Third Party Asset Management Fee (up to .75%?)
- RIA platform itself has a fee (.35%)
- Advisor (up to 1%?)

(These numbers are off the top of my head; certainly not accurate.)

We can always pull up a firm's ADV Part 2 and look up a firm's fee schedule and confirm.

IAPD - Investment Adviser Public Disclosure - Homepage

 

[Allen Trent]

Caveat, not an agent

If financial advisors are charging 1.5% of assets under management, I don't know if it is surprising to see a suggestion that EDJ is charging 2%.

Average AUM fees charged by advisors according to RIA in a box is .95%. AUM fees have come down a lot in recent years. While I am sure EDJ is on the higher side, I would be shocked if it is 2%.

IF this is accurate currently, AUM from EDJ would be between 1.25-1.35% based on the OP stated amounts: Edward Jones Financial Advisor Review | SmartAsset.com

 

[Allen Trent]

The NQ SPIAs was to create largely tax-exempt income instead of trying to do a Roth conversion, since SPIAs have the exclusion ratio which is the only part subject to taxation per year.

Income riders on NQ contracts, I just assume, are 100% taxable, particularly after the original principal/basis has been paid out.

Just a tax-play that may fit the situation plus spread it out over a period of years rather than a large mid-6 figure conversion in one year to a Roth.

But the exclusion ratio only applies to the gains on the annuity. Putting her current after tax brokerage money into a new NQ SPIA would require her to sell the brokerage account, pay capital gains on any existing gains on the equity portions & then deposit into a NQ SPIA which will have almost no gains going forward at todays rates. I dont see that as a tax play as much as I would if she had old NQ Annuities with existing built up gains.

Likely better if she is going to cash out the brokerage account & pay capital gains now(losing favorable step up in basis for heirs), to deposit the money into a Life (SPWL or GUL or GUIL) or a single premium life/LTC-CIA hybrid so it is even more tax efficient long term. Especially based on her current income need & the fact her Qualified account is going to force out so much income in the next few years.

Maybe you are looking at this as if her current NQ money at EDJ is an NQ Annuity. I am looking at it as if it is NQ after tax brokerage account

 

[LostDollar]

Average AUM fees charged by advisors according to RIA in a box is .95%. AUM fees have come down a lot in recent years. While I am sure EDJ is on the higher side, I would be shocked if it is 2%.

I certainly have no breadth of experience in that area. The one firm I am familiar with locally charges 1.5%. Or did two years ago and I have no reason to believe they have lowered their rates.

 

[Allen Trent]

My RIA can charge as high as 1.95% when you take all the fees into account:
- Custodian fees (.20% basis points)
- Third Party Asset Management Fee (up to .75%?)
- RIA platform itself has a fee (.35%)
- Advisor (up to 1%?)

(These numbers are off the top of my head; certainly not accurate.)

We can always pull up a firm's ADV Part 2 and look up a firm's fee schedule and confirm.

IAPD - Investment Adviser Public Disclosure - Homepage

For sure they can be "as much as", I just havent seen any charging max like that.

IF this is accurate currently, AUM from EDJ would be between 1.25-1.35% based on the OP stated amounts: Edward Jones Financial Advisor Review | SmartAsset.com

 

[RunnerDude]

Thanks for the above advice. It has helped me to weigh options. I'm looking at the Allianz Benefit Control FIA product. Since she wants to continue investing some of her money (and due to suitability issues), I will probably suggest moving $500,000 into this product using Roth conversions over (4) years- completing the conversion at 72 years old (to avoid RMD's on this money). Prior to annuitizing, she will receive 2.5 x the reported index interest each year. Since it also continues to gain after annuitizing (1.5 x index interest amount) each year, it will protect against inflation (hopefully). . It also has a LTC rider (1% per year charge) an Income Multiplier after year (5) that pays out double (based on failure to perform 2 or 6 daily living skills)- no charge for this rider. There is a fee for the product itself (0.95%)- but it will not affect her PIV- only the cash value. This is a 10-year contract- and allows 10% yearly withdrawal without penalty. It also has a death benefit equal to the cash value of the contract (which will be tax-free) for her heirs.

The Roth conversion will expose her to the 24% tax bracket (about $11,000 per year in taxes for the four ROTH conversion years)- but then all current and future withdrawals are tax-free. Since her home is paid off, her provisional income is only about $2,000 per year, and she does not have any other available tax deductions (except the standard deduction) or debt liabilities, $44,000 total should be all tax she has to complete the process. Future life-time payouts will be tax-free- which could be reinvested if she desires.

I think this covers all her risks (market loss, LTC, inflation, longevity, sequence of returns, legacy, portfolio deduction due to RMD's).

 

[Allen Trent]

product using Roth conversions over (4) years- completing the conversion at 72

You really might want to consult a CPA on this. You will be dropping an added $120k on her tax return each year. See how that impacts federal & state tax brackets, it will also cause likely another $17k of her SS checks to be taxed at her top rate & lastly get her total income calculated to avoid her getting charged maximum on her Medicare premiums.

It may make more sense to spread the conversions over 10-15 years. There is no requirement that Roth conversions have to stop at age 72. She can take her RMD each year after age 72 & then do conversions on additional amounts. If she donates to charity, she could have distribution /RMDs processed direct from traditional IRA to charity to avoid any taxable distribution showing on her return if it went direct to charity.

Here is the chart on how income can impact Medicare Part B premiums. https://www.google.com/amp/s/www.cn...will-pay-578-monthly-for-part-b-coverage.html

 

[Allen Trent]

I certainly have no breadth of experience in that area. The one firm I am familiar with locally charges 1.5%. Or did two years ago and I have no reason to believe they have lowered their rates.

I would be expecting a ton from someone if I was getting charged that much & would be upset if they were merely placing it in low cost index funds I could do myself for near 0% these days. Would be needing regular overall planning advice, tax ideas. $1,000 per month on $600k better get me 5 -10 hours of billable hours

 

[shooter]

Looks like the legacy is a secondary consideration.

NQ SPIAs would work to maximize income and protect against everything else. I'd just prefer to do it over time to spread out the tax liability rather than all at once.

If you did one NQ SPIA a year for 10 years... that 10th SPIA would be a nice chunk of change. When I last did a proposal for that for a 65 year old, the distribution rate was about 6.8% when it was all combined for lifetime income.

PLUS the Agility has its own lifetime income benefit rider (included - no fee), but I would assume that would be taxable. It'll probably be well below the standard deduction, so it wouldn't have any taxes owed on it.

If you're in any other state outside of California, the Agility has a LTC benefit rider too. You can also carve out a portion of the portfolio to buy a stand-alone asset-based LTC policy.

For legacy for children, if insurable, I'd look at non-lapse GUL products OR single premium life to "double" the amount she originally had in mind on leaving.

My thought was, she would have to sell something
in order to move the money to an annuity.
If she sold mutual funds are stock would the agent
need to be security licensed?

My initial response started out with I'm
thinking out loud.

Shooter