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Transferring Annuities To An IRA

Stan Haithcock
August 25, 2022
Transferring Annuities To An IRA

Let’s talk about IRAs. Some people say never to put an annuity inside an IRA. I have one comment for all those people with that advice; you’re dumb as a box of hair. That's crazy talk. Why is it crazy talk? Because there's an annuity that the IRS and the Treasury Department put on the planet for use inside an IRA. So let's stop with the nonsense.

IRAs, great. It's an instrument. It's a structure. It's a house. And what you put in that house is called furniture. Now annuities, other investments, ETFs, mutual funds, whatever, is that furniture inside the IRA. Contractual guarantees with annuities, regardless of the type of annuity, the contractual guarantees are the same. The only difference between using an IRA, a Roth IRA, or a non-IRA is the taxation of the money coming out.  The point is, should you have an annuity inside of an IRA? I mean, should that even happen? Well, maybe. Maybe not. The point is that most people have most of their assets in their IRA. Nod your head, okay? So, IRA’s work if you're looking for contractual guarantees and transferring risk using annuities.

What are the four things you need to look for if you even want to consider an annuity? I've got easy to remember acronym called PILL. P stands for principal protection. I stand for income for life. L stands for legacy. The other L stands for long-term, confinement, and in-home care. You know, when you're sick, right, and you need some coverage. If you don't need to solve for those four things in the PILL, principle protection, income for life, legacy, long term care, you do not need an annuity of any type. So if you're saying, I've got these IRA assets, I want market growth. I want that money to grow. I want to be a Bitcoin billionaire. I want to write options, calls, better live spreads, futures, and ETFs. I won't do it all. Then never buy an annuity. But if you're saying I need lifetime income using my IRAs, then an annuity will fit, could fit, should fit.

Now, let's talk about IRA rules and required minimum distributions. There are 10,000 baby boomers hitting age 65 every single day. It's a demographic tidal wave, and you need to look at your IRA and go; wait a minute. What's that rule that I have to start bringing money out of my IRA when I turn a certain age? Well, at the time of this taping in 2022, it's 72 years old. It used to be 70-and-a-half. Whoever came up with the half, I have no idea. I just want to smack that person that just made it weird.

When you turn 72, the IRS says, "We've been letting you defer all this time. Yeah, it's time to start bringing that money out so we can collect its taxes." So you have to look at your IRA as an income vehicle when you turn 72, whether you want the income or not, because the IRS doesn't care. If you call up the IRS and say, "You know what? This is the 72 rule. Yeah, RMDs, me, and the misses don't need the income. We don't want to do that." They'll be like, "We don't care. We're the IRS. You have to bring it out."

With annuities, you can solve those required minimum distributions in several ways. Now I'm not going to go through every single one because this is a short video, and I've got you just for a little bit of your life. After this, you're going skiing and boating and golfing. It's going to be great. But, you need to look at your IRA as, okay, this is my group of assets. I have IRA assets. I have non-IRA assets. I might have Roth IRA assets, but let's just say the majority is in your IRA. You have to look at that for solving for principle protection or lifetime income or whatever.

Now, let’s talk about Qualified Longevity Annuity Contracts. Those can only be used in qualified IRA-type accounts for future income, and you can add your spouse to them. You can also use immediate annuities for lifetime income to start now using IRA assets. You could use your IRA assets to purchase an MYGA, Multi-Year Guarantee Annuity, Fixed Rate Annuity, and the annuity industry's version of a CD. You could purchase an indexed annuity inside an IRA for CD-type returns. The bottom line is, does it make sense to use IRA money to purchase an annuity? The bigger question is, does it make sense to own an annuity? If it makes sense to own an annuity, if you want to transfer risk to solve those four items in the PILL, then IRA or non-IRA assets are irrelevant. You and I can have that conversation about which one to use.

For instance, I got to call the other day. Guy said, "Well, the missus and I want a lifetime income stream. We need it to start immediately. We read the SPIA owner’s manual. We think that's for us. We want a lifetime income, joint-life so that as long as we're breathing, we're going to get a payment, and we will structure it with cash refunds so that when we die, any unused money goes to the beneficiaries. But how does that work with RMDs with that immediate annuity?" I'll give you an example. And this wasn't his specific example, but it was a ballpark of what we were talking about. He had $500,000-ish in his IRA and wanted to buy a Single Premium Immediate Annuity with $100,000 of that 500,000. So we set that up, and the Single Premium Immediate Annuity for $100,000 will create that lifetime income stream. It will fully satisfy those required minimum distributions for that $100,000 immediate annuity.

Now he will have to calculate the non-annuity assets of the 400,000, the other 400,000 of that 500,000 IRA, and take RMDs off those non-annuity assets. But that income stream from that $100,000 immediate annuity in his IRA fully covers and satisfies the required minimum distributions for that $100,000. Now you can't use any overage to apply to the non-annuity assets, but from a required minimum distribution standpoint, lifetime income annuities inside an IRA are turnkey. You're getting that lifetime income stream. It satisfies the required minimum distributions, et cetera, which leads to another call I got the other day.

Same situation, but I explained that rule to him, "Well, we're going to do the whole shooting match in the IRA." You don't want to put all your eggs in one basket. And the annuity industry does wince a little once you go past that 50%-60% range of your investible assets in annuities of any type. They do not, they and me included, do not want you to put all your eggs in one basket, all your money in annuities, and that's including your IRA assets. But it might make sense. Here's an example I just thought of. Let's just say you had half a million dollars in your IRA and a half million dollars in non-IRA. If you had a million dollars total, and if you wanted to fully take care of that required minimum distribution using an immediate annuity, then it would be suitable and appropriate to take that IRA asset in full and buy a lifetime income stream if that was the goal that we're solving.

But I think that leads to a bigger picture and the reason we need to talk one on. We have a directed consumer model where you can go there and run your quotes, and in essence, my site's the only site where annuities are bought, not sold. We provide the information, et cetera. But the point of the matter is, you just need to put it in the back of your head that I can use IRA assets for annuities. Does it make sense in every situation? No. But in 2022, should you look at that? Yes, if you're looking to transfer risk.

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.

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