Glad you'd joined me today. We've got the clipboard out. You know what that means? That means I'm reading the questions, and I'm answering the questions on the Stan The Annuity Man YouTube video channel.
I'm holding up the official, The Annuity Man clipboard from the will do, not might do studio. Look at that. Look at the attention to detail that we do. Here's the first question. When you as he's saying, Stan The Annuity Man. "When you said fun from IRA or other source, is my understanding correct that funding from a traditional IRA or from a Roth IRA is not a taxed event, instead is the traditional IRA annuity payment monthly fully taxable as income and is the Roth IRA annuity payment that's monthly tax free?" Very good question.
Let's talk about Roth IRAs in general, and my take on Roth IRAs. In a perfect world where unicorns do chase the butterflies, Roth IRAs, in my opinion, should be used for non annuity assets. You've already paid the taxes on the Roth. That should be where your growth part of your portfolio is. Growth meaning non- annuities, stocks and mutual funds and ETFs and crypto and all that stuff that can really, really grow because you've already paid taxes on it. That's my personal opinion on Roths.
But if you've put the loaded annuity gun to my head and said, "Stan The Annuity Man, I want to buy an annuity inside of my Roth," and that's the way your voice sounds. Then we'll go okay. Let's just say you buy a lifetime income stream product using Roth IRA assets, that income stream is going to be tax free, period. End of story. That's a good thing and you can do that. But once again, in a perfect world that I live in and you should live in Roth IRA should be for the growth portion of your portfolio.
Now, if you're using IRA money to purchase an annuity of any type, and let me stop right there because there's a lot of advisors and stupid journalist out there that'll say, never put an annuity instead of an IRA ever. These people need to stop talking because they're making fools out of themselves. Why am I saying that? Is because the IRS and the Treasury Department developed an annuity called the Qualified Longevity Annuity Contract for use in an IRA, period. When people say never put annuity instead of an IRA, you're stupid, you're dumb.
You can use annuities inside of an IRA, period. Why would you do that? Good question. You do that for the contractual guarantees of that policy. If you're buying an immediate annuity with IRA assets, you're buying it for the pension guarantee of that Single Premium Immediate Annuity. If you're buying a Multi-Year Guarantee Annuity, a fixed rate annuity inside of that IRA, you're buying it for the contractual guaranteed interest rate, CD type interest rate.
If you're buying an index annuity inside of an IRA, you're buying it for the principle protection and the CD type returns. You can use IRA assets to buy an annuity. Now, once you take money out of that annuity, whether it's a withdrawal with a Multi-Year Guaranteed Annuity or Fixed Indexed Annuity, or if you buy a Deferred Income Annuity or QR, or an immediate annuity inside of an IRA, that income stream that comes out of your IRA is taxed at ordinary income levels. Like if you pulled out money from any other non-annuity type of investment inside your IRA.
I got a call the other day, and the guy said, "Well, I'm looking to buy an immediate annuity. Should I buy it in the traditional IRA, or should I buy it in the Roth IRA?" We went through his total picture of what he has, investable assets, net worth, etc. At the end of the process, I said, "Use your Roth IRA for growth assets and non-annuity assets, and let's buy the immediate annuity with the IRA assets; you can attach your spouse for a joint lifetime income." It's a no-brainer for lifetime income.
He tried to put together that income floor. What's the income floor? That's your pension if you're so fortunate. Welcome to the party. Everyone owns an annuity that has a social security number. Now, this immediate annuity that he purchased inside of his IRA for lifetime income is the income flow that money is hitting every month as long as they are breathing. IRA, Roth IRA, it comes down to me, and you are talking one-on-one about your customized situation. But if you have additional assets where there's non-IRA money, IRA money, and your Roth IRA, I'm going to tell you not to put the annuity in the Roth unless you just have to want to or put a gun to my head.
Roth IRA should be for market growth and non-annuity investments. The only exception to that Roth rule, because there always is an exception, nod your head. Putting the annuity inside the traditional IRA would create tax consequences that may bump into another tax bracket. Then maybe we look at the Roth IRA as a place for you to put the immediate annuity for lifetime income or whatever.
Once again, remember, it's customizable. The rule is that there are contractual guarantees that you can put in place, but it's customizable to your specific situation. In that example where if you say, well, I'd love to put it in the traditional IRA Stan, but that's just another source of income that's going to be taxable. I need a non-taxable income stream; then, it might make sense for us to look at that Roth IRA asset for a lifetime income.
So let's go back to the drawing board, the starting point of this whole video. Let's look at traditional IRAs and Roth IRAs. Traditional IRAs. Any money coming out of the traditional IRA will be taxed at ordinary income levels. Any money coming out of the Roth IRA will be tax-free. It's that simple, but that's where the conversation starts, and that's when we look at your overall portfolio and the goals that you have for yourself, your spouse, your family, from the standpoint of lifetime income and legacy, as you start planning for Chapter 2 of your life.
You either want to protect the principle, want lifetime income, you might want a legacy, or you might want confinement care or long-term care. Whatever that is and that acronym, I have the PILL, P-I-L-L, principal protection income for life legacy, long-term care, and confinement care. Those are the things, in my opinion, that annuity solves. They're not market growth products, but remember, traditional IRA money coming out, tax ordinary income levels, Roth IRA tax-free.
One last piece of information on your traditional IRA. If you don't know this, you will. At the time of this taping, when you turn age 72, the IRS will tap you on the shoulder and say, You have to take the required minimum distributions from your IRA now. To me, RMDs requiring minimum distributions is another form of lifetime income. It's another part of your lifetime income floor. If you have social security, which is an annuity, you do; if you have a pension from your company, which you're so fortunate to have, that's an annuity as well; that’s lifetime income.
Your required minimum distribution is the money you have to take from your IRA is also a lifetime income stream. We can help you with that planning with that traditional IRA for your required minimum distributions, either using specific types of annuities for lifetime income, etc. Remember, Qualified Longevity Annuity Contracts were designed for use for future lifetime income pinch and needs inside of an IRA.
If you haven't caught it by now, we need to talk. You need to talk to the number 1 expert on the planet with all things annuity and America's Annuity agent, Stan, The Annuity Man.
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.