Let’s discuss Roth IRAs. Are the payments subject to taxation? In a perfect world, Roth IRAs would be used for non-annuity assets. You’ve already paid the Roth taxes. That should be the focus of your portfolio’s growth. Growth means non-annuities, stocks, mutual funds, ETFs, cryptocurrency, and anything else that can increase since you’ve already paid taxes on it. However, if you wish to buy an annuity within a Roth – and let’s assume you buy a lifelong income stream product from within your Roth IRA utilizing Roth IRA assets – that income stream will be tax-free. That’s excellent news. And you can do that. However, in a perfect world, Roth IRAs should be used for the growing element of your portfolio. Let’s say you’re utilizing IRA funds to buy any form of an annuity, and let’s stop there since there are a lot of consultants and foolish journalists out there. In that instance, it will read, “Never place an annuity instead of an IRA.” These individuals must stop talking. What are we getting at? That’s due to the IRS and Treasury Department developing an annuity, the Qualified Longevity Annuity Contract, for use in an IRA. Annuities can be used within an IRA at any time. And why would you do such a thing? That’s a good question. You’d do it for the policy’s contractual guarantees. If you buy an immediate annuity using IRA funds, you’re doing it for the Single Premium Immediate Annuity’s pension guarantee. Annuities aren’t market-growth products If you purchase a Multi-Year Guarantee Annuity or a fixed-rate annuity inside of an IRA, you’re doing so for the contractually guaranteed interest rate of a CD. If you purchase an index annuity within an IRA, you do it for the principal protection and the CD-like yields. So, you can buy an annuity with IRA funds. Once you withdraw money from an annuity, whether it’s a Multi-Year Guarantee Annuity or a Fixed Index Annuity, or if you get a Deferred Income Annuity or QLAC or an immediate annuity within an IRA, that income stream is taxed at ordinary income levels. One reader asked: “So, I want an immediate annuity. Should I invest in it through a standard IRA or a Roth IRA?” After going through his whole financial picture, including investable assets, net worth, and everything else, we advised him to use his Roth IRA for non-annuity growing assets unless he buys an immediate annuity with the IRA assets and attaches his spouse for a joint lifetime income. For a lifetime income, it’s a no-brainer because he was trying to piece together that income floor. And what’s that, exactly? If you’re lucky, that’s your pension – Social Security, which represents an annuity. Everyone has an annuity with a Social Security number. So, the income floor is the immediate annuity he bought inside his IRA for lifelong income. IRA or Roth IRA all depends on your situation. But if you have extra assets, whether non-IRA or IRA funds, in addition to your Roth IRA, the best would be to not put the annuity in the Roth unless you really have to. Roth IRAs should be for market growth and non-annuity investments. Of course, there’s always one exception. Suppose you placed the annuity in a traditional IRA, and it has a tax impact, such as bumping you into a higher tax rate. In that case, we may consider a Roth IRA as a way to deposit the immediate annuity for a lifetime income. The norm is that you can put contractual guarantees in place, but it’s customizable to your particular circumstances. So, if you need a non-taxable income stream, then it could make sense to consider that Roth IRA asset for a lifelong income. Let’s take a look at traditional and Roth IRAs. Any money withdrawn from a traditional IRA is taxed at ordinary income levels. Any money withdrawn from a Roth IRA is tax-free. It seems simple, but that’s only the beginning of the conversation, and then you have to look at your overall portfolio and the objectives you may have for yourself and your loved ones. You might want to protect the principal; you might want lifelong income or legacy or long-term care or whatever it is. We use the acronym PILL. Principal protection, lifetime income, legacy, long-term care, and confinement care are the things for which annuities are sold. They’re not market-growth tools. Just remember that traditional IRA money is taxed at ordinary income levels, but Roth IRA money is tax-free. One more note about your traditional IRA. When you reach the age of 72, the IRS will tap you on the shoulder and say, “You must take required minimum distributions from your IRA.” RMDs, or Required Minimum Distributions, are another type of lifelong income. They’re a contribution to your lifetime income floor. So, of course, if you have Social Security, you have an annuity. If you have a company pension, which you are pretty lucky to have, that’s an annuity and lifelong income. Your RMD is the amount of money you must withdraw from your IRA each year; it’s also a lifetime income stream. And, remember that Qualified Longevity Annuity Contracts were designed for use inside of an IRA for future lifetime income pension needs. Every time anything sounds too good to be true, it is.
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Bio:
Mike was born in Chicago, Illinois on August 13, 1946. He was brought up in thesuburb of Skokie on Chicago’s northwest side and graduated from Niles Township (East ) high school In 1964. Two years later he joined the US Air Force in November of 1966. After 2 years of Intense training he volunteered for Viet Nam and was sent toBien Hoa Airbase, which was 25 miles from Saigon, the nation’s capital. He volunteered for a number of especially dangerous missions on his days off, such as flying as a door gunner on a US Army helicopter and as a technical assistant on a psychological operation on an Air Force O-1E observation aircraft. Capping off his impressive accomplishments was winning the coveted Base Airman of the Month for March 1969, a feat which was featured in the Pacific Stars And Stripes newspaper read by every service man stationed in the Pacific theater of operations. After hisViet Nam tour of duty he was stationed at Luke Air Force Base in Glendale, Arizonawhere he met and married his wife, Lequita.He graduated from Arizona State University in May, 1973, and after a 30-plus year career as a financial advisor he joined a number of service organizations including Easter Seals and Valley Forward, sponsor of EarthFest. He was also involved with the National Federation of Independent Business and became the longest-serving chairman of the Leadership Committee ever. He spoke before the ( AZ ) House Waysand Means & Senate Finance committees. He then joined Disabled American Veterans ( DAV ) in September of 2015. He rose quickly through the ranks and became Chapter 8 Commander in May of 2019 where he served with Distinction for 3years before being “ termed outâ€. The next year, as Vice Commander, he won the title of National Champion Recruiter!
