Conservative investors looking to protect a portion of their individual retirement account will often consider an annuity as a means to establish predictable growth and reliable income now or in the future.
IRA annuity investments provide steady growth and are ideally suited for required minimum distributions. There are several types of annuity accounts to choose from, but most often fixed, indexed, and immediate policies are chosen based on their safe track record.
An IRA (individual retirement account) is a savings vehicle that is funded by investors during their working years on a tax advantaged basis. Invested funds grow tax deferred and can be withdrawn on a taxable basis once owner reaches age 59 1/2. Mandatory distributions must begin at age 70 1/2 in most cases.
An annuity is simply an investment with an insurance company; much the same way that a certificate of deposit is an investment with a bank. There are several types of annuities available for investment purposes including: variable, equity-indexed, fixed, and immediate.
Thus, an IRA annuity is a combination of the two. As oppose to investors placing their tax-deferred retirement dollars in a bank, a mutual fund, the stock market or elsewhere, the monies are invested into an annuity account that best fits their risk tolerance.
Depending on the annuity that is ultimately selected, the primary advantage is safety.
Variable annuities aside; fixed, indexed and immediate annuity policies are some of the safest investments available for conservative minded investors.
The overall markets have been very unpredictable over the last decade and many investors simply want a retirement account that provides steady growth and income. Annuities are well known for their reliable fixed interest, predictable returns and regular income.
Some investors wait until retirement to exit the stock market, but many others place some or all of their qualified (tax-deferred) money in a fixed or equity-indexed account in order to protect it from downside market loss.
Annuity policies can be ideal for the required minimum distributions that most IRA owners must take at age 70 1/2. If these same funds are subject to market fluctuations, then consumers may have to sell more shares toward the end of the year in order to satisfy I.R.S. requirements. Once shares are sold, they are no longer present to participate in any gains should the market recover.
Fixed, indexed, and immediate annuity accounts avoid this conundrum as they do not fluctuate down with the overall markets. This is why fixed interest investments are preferred when distributions are required. They can help prevent the erosion of retirement accounts by eliminating the need for selling a depreciated asset each year.
The beneficiary inheriting an IRA has several choices in most cases. In many instances, there will be more than one beneficiary of a retirement account and the new owners might make different choices as to how the funds are invested.
Annuities are ideal for IRA beneficiaries who wish to reduce their overall tax burden by receiving the funds based on their life expectancy as oppose to a lump sum distribution. A stretch IRA annuity account can be a suitable investment as the income and distributions are very predictable allowing for regular principal and interest withdrawals.
By stretching the distributions out over several years (if not a lifetime) the IRA beneficiary can oftentimes maintain a lower tax bracket, increase the value of the account while providing reliable income for a desired number of years.
Assuming the annuity has reached maturity, the multi-generational IRA owner can also withdraw funds above and beyond what is required by the IRS should they be needed. In this way, stretch annuities provide superior tax advantages and flexibility over comparable investments.
Income riders are simply a way of guaranteeing growth on the invested dollars in a fixed, indexed or variable annuity account. These riders usually have a fixed cost each year that is subtracted from the invested principal.
The guaranteed growth or roll-up varies from carrier to carrier, but is usually around 7-8%. It is very important to factor in the future withdrawal factor (usually based on age) when shopping around for the best annuity income rider.
That being said, fixed and indexed annuities offering a guaranteed income rider are increasing in popularity for those who wish to establish regular future income. The roll-up allows for steady and predictable growth on the invested principal.
The accumulated income value can be turned into a stream of income for a lifetime 5, 10, 15 or 20 years later depending on the needs of the investor. Income can also be adjusted or even paused if desired.
Hyers and Associates, Inc. is an independent insurance and annuity agency offering individual retirement accounts from several carriers. We assist with fixed, indexed, income generating, beneficial, and traditional IRA rollovers.
Using our expertise, you can view illustrations from several highly-rated carriers in order to find the most suitable investments for your needs.