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Mar 1, 2008 12:00 PM
Using Variable Annuities in IRAs
By 2012, nearly $7 trillion of retirement plan assets will be rolled into individual retirement accounts (IRAs). Indeed, for most, the IRA will be their primary source of income during retirement. With the demise of traditional defined-benefit pension plans and the future of Social Security in doubt, more retirees have to create their own guaranteed sources of income. As a result, investors may look to annuity features designed to help protect retirement assets and facilitate income distributions. However, given that annuities have historically been sold for their tax deferral benefits, many question the practice of using these investments in tax-deferred accounts such as IRAs. Truth is: there are benefits, potential pitfalls and a slew of retirement and estate-planning issues that need to be considered when using variable annuities in IRAs.
Many investors are attracted to the protective features offered by annuities. They offer riders that can help mitigate market, inflation and longevity risks. There are basically two types of guarantees offered: the death benefit and the living benefit. The death benefit guarantees that beneficiaries inherit whichever is higher: (a) an amount at least equal to what was originally contributed to the IRA, less any withdrawals; or (b) the account value of the contract upon the owner's death. An optional step-up feature may be added at an additional cost, providing that the death benefit guarantee will lock in any market gains on each contract anniversary and pass the highest of these gains to the beneficiaries before annuitization.
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| GSTs | Family Offices |
| Private Foundations | Life Insurance |
| 2010 Tax Act News | Industry Trends Surveys |
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