ROTH annuity options

[scagnt83]

110% agree. Hate that commission is treated like a dirty word. A 5% commission one time on an Annuity or mutual fund is made to be a crime, but 1% annually for 20 years is better for consumer.....lol

Annuity comp and MF comp are different imo. Annuity comp does not cause the client to start off in the negative, neither does a wrap fee.

Also, someone paying a wrap fee should be receiving services other than just being put in a mutual fund. (if thats happening or not is a different matter)

 

[scagnt83]

Yes... but, assuming this could be in her best interests... after the transfer period is done, she'd NEVER have to pay those taxes again, depending on where the money is transferred to.

Id rather pay taxes on a much higher amount that is earning double the interest than not pay taxes on a much lower amount that is earning half the interest.

No taxes sounds great... until you actually run the numbers. Very few people are great candidates for a ROTH conversion. The numbers rarely make sense.

 

[scagnt83]

And that is only the federal 24% part of it. Then you have to add state tax, if any plus the fact she will owe 24% on 18k of SS checks & lastly she will possibly pay another $200-400 more per month for Medicare Part B during the 5 year conversion period if she did $120k per year

Exactly. When the basic math does not make sense... the complex math will be even worse.

And this is exactly why the OP is going to get crushed by the EJ advisor (or any CPA who reviews it) if he pitches this idea.

$60k more in taxes.
50% less in interest.
Hundreds more per month in Medicare premiums.
Higher SS taxes.

Taking a loss of $6k in interest per year, just to eliminate a tax bill of $2k per year... is insane... much less suitable.... and certainly not in the clients best interest.

 

[scagnt83]

That is massively high. Like DHK mentioned, coming "all in" around 2% (including all fees) can make sense but a management fee of 1.5% that goes the RIA/IAR is not competitive today.

Id bet the 2% is an "all in" number. 1% management fee and 1% fund cost. Or something close to that.

 

[Allen Trent]

Annuity comp and MF comp are different imo. Annuity comp does not cause the client to start off in the negative, neither does a wrap fee.

Also, someone paying a wrap fee should be receiving services other than just being put in a mutual fund. (if thats happening or not is a different matter)

fair enough, but if I buy an A share mutual fund company with $500k, my sales load would be likely 3.5%. that might only be what an advisor charges with AUM fees over 3-5 years. I would expect a lot from them if I am going to have a permanent drag long term.

I am just saying both commissions or fees can be OK & both can be wrong depending on the situation. It doesnt have to be an all or nothing one is good & one is evil

 

[DHK]

Id rather pay taxes on a much higher amount that is earning double the interest than not pay taxes on a much lower amount that is earning half the interest.

No taxes sounds great... until you actually run the numbers. Very few people are great candidates for a ROTH conversion. The numbers rarely make sense.

Did you run the numbers incorporating a safe withdrawal rate?

The numbers absolutely make sense.

I can help someone spend $460,000 as though it was over $1.7 million when you incorporate federal, state, social security tax, medicare/IRMAA (as appropriate), and AUM fees.

To equate this using traditional planning, they'd have to net 11.5% rate of return AFTER fees each and every year for 10 years. Certainly unlikely to happen.

 

[DHK]

You are framing it in a way to fit your personal preference of not having qualified funds. It is nothing but sales jargon meant to frame it in the way you want it framed.

Its not money lost because she is still earning interest on it.

Are the taxes you pay on a house "already lost" before you pay them?

Are the taxes you pay on a non-qualified account "already lost", before being paid?

The exact same thing could be said for anything in this country that is taxable.

Sorry David, but I feel that using jargon like that is not being sincere and factual about the situation. And it makes the whole annuity industry look bad when agents make statements like that.

I get your point. But it is being made in a disingenuous way imo to paint qualified accounts in a bad light, when the features you are painting as negative are no different than any other taxable asset.

You labeling it jargon doesn't make it any less true. You can badmouth "my jargon", but the facts are still there.

And plenty of top producers enjoy using 'jargon' if it helps to communicate effectively.

Btw, "jargon" isn't defined as you implied it. "Jargon" is when you're using technical speak to speak above someone's head.


jargon
[ˈjärɡən]
NOUN

1. special words or expressions that are used by a particular profession or group and are difficult for others to understand.

 

[DHK]

Taking a loss of $6k in interest per year, just to eliminate a tax bill of $2k per year... is insane... much less suitable.... and certainly not in the clients best interest.

That's not the tax bill.

The tax bill is the unrealized taxes yet to be paid on the entire IRA account.

And the more you postpone, the more it'll be confiscated (jargon?) by the IRS tax code through the plan beneficiaries when they inherit it.

Was it your intention, when you started this plan, to make the IRS the primary beneficiary of this plan?

 

[Allen Trent]

And the more you postpone, the more it'll be confiscated (jargon?) by the IRS tax code through the plan beneficiaries when they inherit it.

While I completely agree with this general premise, it just isn’t factual in all cases, especially those with currently highly successful parents who are business owners, high income Drs/Lawyers, etc who have some children of moderate/modest incomes. Some of those parents deferring taxes currently at 30-40% with children who are teachers, stay at home single income families, etc might actually owe lower taxes receiving the IRA funds over 10 year stretch than the parents might have owed in taxes.

But I do always like the discussion of making the IRS a partial beneficiary of your Tax deferred products. It does open the eyes of consumers that dont understand how various products are taxed during lifetime or death. I find NQ Annuities even more of a tax problem discussion than qualified funds. I say this because the most conservative people are buying MYGA NQ Annuities & FIA & for those that dont need income & are in 0 or 10% tax brackets, they are indeed allowing built up gains to be taxed at an equal or higher rate. NQ annuities likely should be focused on high income for tax deferral or those who need the product for certain/likelihood for income, not for those just wanting a better than CD place to park lazy money. That can sometimes be better suited in MEC products that get the tax deferral of a NQ annuity, but the tax free death benefit, etc.

Bad quality image, but the attached document is one I always liked using to educate on this topic of how items are taxed at death. I hear many agents mistakenly tell people that CD are taxable at death or that brokerage accounts are & that is why you should consider life or NQ annuity, etc. Many agents mixed concepts together & then share with a client out of ignorance not bad intentions in many cases

 

[DHK]

I find NQ Annuities even more of a tax problem discussion than qualified funds. I say this because the most conservative people are buying MYGA NQ Annuities & FIA & for those that dont need income & are in 0 or 10% tax brackets, they are indeed allowing built up gains to be taxed at an equal or higher rate. NQ annuities likely should be focused on high income for tax deferral or those who need the product for certain/likelihood for income, not for those just wanting a better than CD place to park lazy money. That can sometimes be better suited in MEC products that get the tax deferral of a NQ annuity, but the tax free death benefit, etc.

Agreed!

Now, because of how the Athene Agility contract works, I like it for the purpose of principal protection, reasonable indexed growth, and a 'free' lifetime income benefit rider for whatever happens to remain after we use it for income and/or funding life insurance over a 10-year period. Or, if uninsurable, then we can purchase NQ SPIAs over the next 10 years to fund their income on a largely tax-exempt basis.

Sure, the LIBR income will be fully taxable (safest assumption), but it ought to be lower than their standard deduction, so no taxes due.

So I use it rather strategically for both NQ and Q funds.

The only downside, is I wish I knew of more contracts (other than Brighthouse) that has similar contract provisions. Allianz is close, but they don't allow a withdrawal the first year. If Athene makes a material change to their Agility contract, this strategy can be wiped away, unless I can find another contract. However, since the stretch IRA is gone and IRAs have to be distributed in a 10-year or shorter period, I don't *think* it'll go away anytime soon?

Only time will tell.