What Advantages do Tax-deferred Annuities offer IRA and 401K owners?
If you were to believe the gurus on Wall Street you would believe that, because IRAs are already tax-deferred, there is absolutely no advantage to putting a Fixed Annuity inside an IRA. Of course, they want to keep as much of that qualifed money under their management (and fees) as possible. So, are there any advantages to using Annuities in IRAs? Let's take a look at a few ways that Annuities are ideal for IRA Growth and Distribution:
1.) Fixed Indexed Annuities are free from Market Risk.
The number one concern for your money inside your 401K or IRA should be Safety! Over the last decade we've seen two Market crashes, as well as a Real Estate collapse. Your IRA money is supposed to be there for your retirement- how many jokes have you heard about "my 401(k) is now a 201(k)"? Wall Street gurus did not predict any of these previous downturns in time to save people's retirements- the Market goes up and the Market goes down- nobody knows what the future holds on Wall Street. Money in a Fixed Indexed Annuity is guaranteed to never decline in value- but it does share in all the upside that Wall Street talks about!
2.) 100% of your invested money is working for you.
While Wall Street brokers will tell you that fees are high on Annuities, the truth is that there are NO fees on Annuities, unless an Income Rider is added on, and then the fees range from 0.00 (no fee) to 1.40 basis points. Fixed Annuity commissions to agents are paid by the Insurance Companies from the spread between the gross of their bond portfolios' yields and the net credited to their clients' accounts- similar to how the banks make their money. In this way 100% of a client's money is working for him or her from day 1! Compare this to brokerage accounts where generally money under management is being charged 1% or more per year, Mutual Funds expenses, including hidden fees, can be as high as 2% or more, stocks are charged a commission every time they are bought AND sold, and Variable Annuities that they offer can have fees as high as 4% a year or more!
3.) Required Minimum Distributions at age 70 1/2 from IRAs and 401(k) plans.
How do Fixed Annuities help here? Well, the first Required Minimum Distribution is 3.65% of what was in the account as of Dec. 31 of the year PRIOR to turning 70 1/2. So if someone lost any money in the Market between Dec. 31 of that year and the date they take their first and subsequent distributions, their distributions will all be based on the higher amount that was in their account on Dec. 31. This means that their retirement savings will be depleted quicker! In addition to that, with all the fees, loads, and hidden expenses in their Market accounts any return they receive will yield them at least 2% less on average than they actually earned. With a Fixed Annuity the owners cannot have a down year that will affect future distributions and they would always get 100% of what they earned!
4.) Income Riders Guarantee Retirement Income Planning!
Annuities have always been known to be able to create an income stream for life through Annuitization, but the downside here is that access to the principal has been sacrificed to get this income. But now we have the best of both worlds with Income Riders! Now the Annuity owner maintains access to the remaining principal, even after starting to take income, if they ever want to take any of that in a lump sum. With a principal withdrawal they still have guaranteed income for life no matter how long that is on the remaining balance- and any balance in the account at death is still passed on to the heirs! These Riders are part of the Annuity contract and are Guaranteed by the Insurance Carriers.
5.) Passing on Wealth to Your Heirs
By having money in an Annuity you can reduce the taxes you are currently paying on your retirement account so you can keep more of your money growing. And by eliminating Market risk you could dramatically increase the amount of money in your retirement account. By utilizing the strategies as described in the next page " Passing on Wealth- the Stretch IRA" you could pass on 2 to 3 times as much to your children OR 3 to 4 times more to your grandchildren for true wealth transfer.
So to summarize, there are many advantages other than just Tax-deferral for choosing to put some of your retirement money into a Fixed Indexed Annuity inside of your IRA, 401(k), or any other qualified retirement plan.
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