A lot of advisors recommend rolling your IRA savings into an annuity to use during retirement. There are both advantages and disadvantages to doing this, so Annuity FYI published an article today detailing both and giving helpful information on the subject to consumers. People invest in IRAs for many reasons during their working years. The biggest advantages to using an IRA for savings is that you can use pre-tax dollars in an IRA and your money grows without being taxed. If you are using an IRA to save money for retirement, the tax deferral will help you accumulate a lot more money than if you were investing somewhere that your gains were getting taxed. IRA money typically gets invested in stocks or mutual funds. At retirement, choosing to rollover your IRA into an annuity offers three big advantages in your financial planning.
With an annuity, you are purchasing insurance for your retirement. Since a home and your retirement savings (whether it be in an IRA or an employer-sponsored plan) are typically your two largest assets, they should both be insured. I don’t know anyone who doesn’t have homeowners’ insurance, so why wouldn’t you insure those retirement savings against loss or longevity risk? Annuities can protect you when markets are down, guarantee you lifetime income, and can pass death benefits on to your heirs.
Annuities can offer you lifetime income and even protection against inflation. If you roll your IRA into an immediate annuity or a variable annuity that has a lifetime income benefit, your lifetime income will be guaranteed at a preset rate regardless of what happens in the markets when it is time for you to retire. Some immediate annuities also offer inflation increases to keep up with the cost of living in addition to their death benefits.
Remember those tax benefits causing people to invest in IRAs in the first place? Those continue with annuities. Your rollover from an IRA to an annuity is tax-free. Annuities funded with IRA money are considered “qualified” annuities. You will not be charged distribution taxes when you make such a rollover, like you would be charged with pension or certain other pre-tax distributions. Buying an immediate annuity with an IRA rollover is tax-free. Annuities also carry the advantage of being tax-deferred, so you don’t lose that benefit when you rollover your IRA into annuity.
Those who are unfamiliar with annuity products also need to know about their potential downsides as well. Variable annuities often come with surrender fees for taking your money out before a predetermined time frame. Consumers must be aware of this so they don’t lose money to surrender charges. While annuities offer features not available with mutual funds, they also usually carry higher fees than the latter. Make sure that you desire the added features that you are paying for before buying an annuity with those fees. When buying an immediate annuity, remember that you have given up access to your premium in exchange for your guaranteed income stream. Annuity FYI experts would be happy to give you more information for free if you contact them online or over the phone.
Written by Rachel Summit