Can You Buy an Annuity Inside an IRA?
Stan The Annuity Man here. Today, we will discuss whether you can buy an annuity inside your IRA. Many people are out there who, when they hear that, just go crazy and say, "You should never buy an annuity inside of an IRA." That's just complete and utter garbage. And you can take this blog and shoot it to your financial advisor if they're the ones who said that. And I'll argue all day that it's garbage. But the short answer is this. Can you buy an annuity inside of an IRA? The answer is yes. But that's not the real question. The real question is why, and should you? And that's what we're getting ready to talk about.
Let's Talk IRAs
Annuities can fit into every single IRA. It really comes down to how the money is taxed. So, let's talk about the IRA because that's what you asked about. And I'm assuming you're talking about traditional IRAs, rollover IRAs, or something of that sort, not a Roth IRA. So, we won't talk about Roth, or we won't talk about non-IRAs, but understand annuities can be held in any of those types of accounts. It comes down to the contractual guarantees. You should only buy an annuity for what it will do, not what it might do. And the will do is the contractual guarantees. Never buy an annuity of any type for the hypothetical, theoretical, back-tested, projected, hopeful agent return scenarios. Do not buy unicorns chasing the butterflies. Do not buy the sizzle; buy the steak. And the steak is the contractual guarantees because, guess what, annuities are contracts.
This gets to the first question as to why you and I were talking in the first place, which is, can you buy an annuity inside of an IRA? And my questions after that is, should you and why would you? The answer is yes, you can buy inside of the IRA. And the reason that you would is if you're trying to solve for a specific contractual guarantee. There are two questions to buy an annuity of any type. What do you want the money to contractually do, and when do you want those contractual guarantees to start? So, let's go through the types.
Single Premium Immediate Annuities inside of an IRA. Can you buy one in there? Absolutely. Should you? If you need income. If you need lifetime income, you can buy a Single Premium Immediate Annuity inside of your IRA, and that income stream coming out is taxable because it's inside of your IRA. But you can set it up inside your IRA joint with a spouse. How about that?
Deferred Income Annuities, DIAs. What is that? That's an Immediate Annuity that you can defer. Can you buy a Deferred Income Annuity inside of an IRA? The answer is yes, but most carriers only allow you to defer to 73. Because at 73, the DIA becomes a QLAC, a Qualified Longevity Annuity Contract. So, at 73 and 85, if you need income, you can turn it on any time between that, then you can buy QLAC inside your IRA.
And with all of these, you can attach a spouse or partner for joint lifetime income. For people out there that just carte blanche, say, number one, "I hate annuities," not smart. Number two, "You should never buy an annuity inside an IRA." That's that goober voice I hear people say when they don't know what they're talking about. That's garbage, too. And you guys, everyone says that everywhere I'm reading that. They're wrong. You don't believe all the news you see and hear, do you? Then don't believe all the annuity news you see and hear as well. Stan The Annuity Man, America's annuity agent, the number one educator on the planet, and I do sell annuities and a bunch of them, but only if they contractually fit into your portfolio.
But can you buy it inside of an IRA? Yes, it really comes down to what type. Let's go through some more types. Can you buy a Multi-Year Guarantee Annuity inside of your IRA? The answer is yes. What is a Multi-Year Guarantee Annuity? It's the annuity industry's version of a CD. So, what are you buying? You're not buying the tax deferral because you're already in a tax-deferred structure. You're buying the guarantee. Let's say the MYGA is a five-year MYGA, five-year guarantee at 3.9% per year for five years at the time of this blog. 20 years from now, someone will say, "Well, you don't know what you're talking about."
But yeah, you're buying that guarantee. So, you can buy a MYGA. Can you buy an Indexed Annuity inside of an IRA? Absolutely, you can, as it's the same thing. You're buying the principal protection, and you're buying the CD-type returns. You might even attach an Income Rider for future income inside of that. Can you buy a Variable Annuity inside of an IRA? Yeah, you can. Same thing. You're not going to get any tax deferral.
Variable Annuities were put on the planet in 1955 that range for tax deferred growth. But you already got a tax deferral, right? So, the short answer to the whole thing is, yeah, you can buy annuities inside a traditional IRA. The question is, do you need to? And if so, what are you trying to contractually solve for? And from that, annuities can complement your IRA.
Most of the assets out there from a retirement standpoint are inside of IRAs and are qualified money. To say that you can't, you shouldn't, or it's stupid to buy any annuity inside of an IRA is not right. It shouldn't be put out there by people who don't know what they're talking about because with 10,000 baby boomers retiring every single day, you might be that person, you might be that person that's saying, "You know what? I'm either getting close to retirement or at retirement, and I don't want to do this market volatility stuff."
A guy called me the other day and said the reason he bought the Immediate Annuity is in the future, he was afraid that he wouldn't have the cognitive ability to decide to get a lifetime income stream. So, he wanted to put one in place now. That's the first time I've ever heard someone tell me that. And it hit me. I'm like, "Yeah, there's probably a lot of people out there that are saying, 'You know what? I want to put this in place to make it turnkey, so my family doesn't have to worry about the income stream coming in.' They do it proactively."
Not saying you're going to lose your mind like Stan The Annuity Man, right? But all have to plan for the future. But this gentleman talked about an Immediate Annuity inside the IRA, and I said, "Yeah, that's pretty cool." Let's talk about the good and the bad of that. And most of it was pretty good for his situation.
He had a million-dollar IRA plus, but let's just say a million. And he wanted to buy a $400,000 Immediate Annuity to create a lifetime income stream for both him and his spouse. You can add your spouse as a joint life participant in the IRA. So, when you die, the income stream continues uninterrupted and unchanged for their life, which is a good thing. You're kind of leaving a good legacy for the spouse, and most spouses just care about the income.
That's nothing sexist, so calm down a little bit. But let me give you an example of my wife. My wife, when I die, after the party, she's only going to care about the income stream to see the kids and hopefully grandkids. That's all she's going to care about. If I'm setting up an Immediate Annuity like this gentleman was doing, she'd be happy. Here's the good news. He will get a lifetime income stream for himself and his wife. And I told him to take her out for dinner and tell her that when he dies, she gets an uninterrupted lifetime income stream. She's going to be happy. But here's the good news.
Required Minimum Distributions
The $400,000 Immediate Annuity and that income covers the RMDs, the Required Minimum Distributions when you're 73. So, this income, this $400,000, is turnkey. RMDs are done. Now you have to take, of the additional remaining amount, in this case, $600,000, you'd have to take Required Minimum Distributions of that non-annuity amount. But what he liked were two things. We killed two birds with one stone. He got a joint life income stream payment, which created income that he and his wife needed, not only while he was living but certainly when he's dead and she's surviving. And then also, that income stream from the $400,000 SPIA fully covered the Required Minimum Distributions, which is fantastic. And then he went and had to take the RMDs on the remaining amount of his IRA.
So, there's a couple of examples. Maybe that's something you're thinking about, and perhaps you have something specific in mind. If that's the case, book a call with me, and we can get together on the phone or via email and discuss strategies. I'll put something together for you so you can see quotes from all carriers.
Okay, we covered buying an annuity inside of an IRA. I think we were pretty thorough on that. I've done a video that you might want to look at called, Can You Buy an Annuity at Any Age, which is pretty neat, right? I mean, for the youngsters out there, if you're thinking about buying one for maybe a grandson or granddaughter or daughter or wondering ambiguity, somebody that's not got their stuff together yet, we cover that as well. So, I recommend you doing that. Thanks for joining me today, and I will see you on the next Stan The Annuity Man blog.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.