IRAs and 401(k) Plans…Best or Worst Places to Buy an Annuity?

If you want to see a CPA’s face turn red, simply tell him/her that you purchased an annuity inside an IRA or 401(k) plan.

Why…what criticism would a CPA have?

The typical uninformed/under-educated CPA will typically say one or both of the following:

1) There is no need to buy a “tax-deferred” annuity inside a “tax-deferred” IRA/qualified plan.

2) You must be working with a product pushing advisor you should never use again.

The CPA is WRONG!

CPAs do what CPAs do and that’s focus on taxes.  In this case, doing so means they are missing the point of using certain annuities in tax-deferred IRAs/401(k) plans.

Using annuities NOT for the tax deferral

What the CPA is missing are the “other benefits” certain annuities provide that have NOTHING to do with their tax deferral.

Reasons to use an annuity inside an IRA/401(k) plan:

1) No risk of market loss—Fixed Indexed Annuities (FIAs) offer no risk of loss due to downturns in the stock market and locking of the gains in up years (usually gains are limited to a capped amount). For people 50 and older, not losing money in part of their portfolio can be very important.

2) Guaranteed income for life—FIAs (and some variable annuities) can come with guaranteed income for life riders on them. While income riders are not for everyone, for many they provide a level of confidence that is difficult to achieve otherwise.

3) Enhanced income for LTC (long-term care)—some FIAs come with enhanced guaranteed income for life payments if an insured can’t perform 2 of 6 ADLs (activities of daily living). The enhanced guaranteed income for life payment usually lasts for a period of 4-5 years depending on the carrier and the length of need for LTC benefits.

Let me qualify the “wrong” comment from earlier. If someone wanted to buy a typical no bells and whistles variable annuity (one that simply buys mutual funds in a tax-deferred annuity wrapper), the CPA would have a good point (there is no need to buy that type of tax-deferred vehicle inside a tax-deferred IRA or 401(k) plan).

Conclusion

If you have money in tax-deferred accounts like IRAs and 401(k) plans and are interested in an asset that has no risk of loss from the stock market, an optional guaranteed income for life payment, and/or one with an enhanced payment should you qualify for LTC benefits, then buying the “right” kind of annuity could be just what you need.

Want help finding the “right kind” of annuity for your IRA or 401(k) plan?

There are many different annuities in the marketplace. Some are good, some are bad, and some are just ok.

If you would like help determining if an annuity may be a good fit for your individual situation, simply give me a call or shoot me an email and we’ll set up a time for a call (and feel free to invite your CPA to be on the call so we can get that discussion out of the way sooner rather than later).


Index or fixed annuities are not designed for short-term investments and may be subject to caps, restrictions, fees, and surrender charges as described in the annuity contract. Any guarantees mentioned are backed by the financial strength and claims-paying ability of the issuing insurance company.