How to Buy an Annuity: IRA, Non-IRA, Roth IRA? (TAM Classic)

Hi there, Stan The Annuity Man, America's annuity agent, licensed in all 50 states, including the one that you're sitting in. Today's topic is about annuities inside of an IRA, a non-IRA, and a Roth IRA. We're going to go through each type, how it works, and why you might consider putting an annuity type inside of those structures.‌

The first thing we have to cover is all of the advisors, masters of the universe, journalists, and all these ads you might see out there that say never buy an annuity. "Never put an annuity inside of an IRA. Never, ever, ever." That's so uninformed and stupid, for lack of a better phrase. I can't even see straight because the funny part about people saying, well, never put an annuity inside of an IRA, Stan, is because there's an annuity type called a Qualified Longevity Annuity Contract that was designed and introduced by the IRS and the Department of the Treasury for use inside of a traditional IRA or IRA type accounts. Hello. So, that just debunked that.

Annuity Types

Another thing is that you just can't say the word annuity, and it's all-encompassing. Annuities, many different types. There are Single Premium Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, and Fixed Index Annuities. There are Variable Annuities, which we don't sell, and then there are Income Riders that can be attached to Index Annuities. So, there are a lot of different types, strategies, and ways that you can use them. When I'm talking about all these account types, I'm talking about all these annuity types and how they fit.

What It Will Do, Not Might Do

So, inside an IRA, let's just say you're looking at a traditional IRA; you can have an Immediate Annuity or Deferred Income Annuity, a Multi-Year Guarantee Annuity, or an Index Annuity. You can have all of those in there. The difference is when you take money out of an IRA, you take it out, and whatever you take out is taxed at ordinary income levels. It's the same thing with an annuity. Now, why would you put an annuity inside of an IRA? You put it in there for the contractual guarantee. You own an annuity for what it will do, not what it might do, and the will do are the contractual guarantees, and the might do is the hypothetical, theoretical back-tested number nonsense agent hopeful return scenarios that, well, if you owned it like this, if you owned it 10 years ago, it could do it, it might do it, it possibly could do, crap. You own it for what it will do, not some unicorn chasing the butterfly proposal. Anyone can juice numbers on a sheet of paper.

Transfer Risk Contracts

The bottom line is you never buy an annuity for that. In my opinion, you never buy an annuity for market growth. Annuities are transfer risk contracts. So, inside of an IRA, you're transferring the risk. With Immediate Annuities in an IRA, you can use them for lifetime income to start immediately. Multi-Year Guarantee Annuities inside of there, is for a guaranteed interest rate, like a CD. Index Annuity equals CD-type returns inside of an IRA. Deferred Income Annuities can be inside a traditional IRA, but the income cannot start. It can start up to age 72. Past age 72 if you want income to start, then that's a Qualified Longevity Annuity Contract. So, I've just debunked all the people out there that say never put an annuity inside of an IRA, Stan. That's dumb. It's stupid, uninformed, and it's misinformation. These people need to stop talking about what they don't know. I'm not giving people advice on achieving greatness in ballet because I don't know anything about it. They need to do the same thing with annuities.

So, let's talk about non-qualified, non-IRA, checking account-type money. Checking and savings account-type money that's already been taxed. Can you buy annuities using that? Absolutely. That doesn't mean you have to, but you can.

Taxes

With Single Premium Immediate Annuities, Deferred Income Annuities, those are lifetime income products, and the lifetime income is a combination of return of principal plus interest. In a non-IRA account, you're not going to pay taxes on the return of principal. You will pay taxes on the interest, and you can go to The Annuity Man and run quotes on my SPIA calculator and DIA calculator to see; it will show you the total income amount and then the taxable portion if it's a non-IRA account.

Now, you can also buy Indexed Annuities and Multi-Year Guarantee Annuities in non-IRA accounts, and the growth, the interest rate growth with those products is going to grow tax-deferred in a non-IRA account.

Once you decide to withdraw money, it's last in, first out accounting, LIFO, gains first, and it's taxed at ordinary income levels, and that's for the non-qualified, non-IRA account.

Now, obviously, Qualified Longevity Annuity Contracts are used only inside IRAs. Can Income Riders attached to Indexed Annuities be used in non-qualified? They absolutely can. You can also get income from that non-IRA asset. And that income coming out when you start taking it is once again last in first out gains first, and you're going to pay at ordinary income levels that money that's coming out, that income stream.

Roth IRAs

We've covered IRA; we covered non-IRA. So, let's talk about a Roth IRA.

Now, in my opinion, Stan The Annuity Man, America's annuity agent, and having managed money at very high levels at Dean Witter, Payne Webber, Morgan Stanley, and UBS, when you want true market growth, if you have a large enough portfolio and you have IRAs and non-IRAs and then you have a Roth, you've converted some money to Roth, in my opinion, that Roth IRA should be used for real market growth. And anytime you want real market growth, in my opinion, you should never, ever, ever, ever, ever buy annuities of any type. That's just my opinion. I know you're going to hear differently out in the hinterlands of the annuity world, but that's my opinion, and it's an experienced and factual opinion.

But let's say, "You know, Stan, we still want to use the annuities inside of a Roth." Well, the Roth money's already been taxed, and unless our friends in DC change the rules, which they could, I guess, and you might be grandfathered in if they do, you could put everything but a Qualified Longevity Annuity Contract inside of a Roth IRA. You can, and the money coming out will be tax-free, which is a good thing.

The Two Questions

I do have clients that say, you know what? We want a lifetime income stream. We want it to start right now. That's an Immediate Annuity. Again, my two questions, what do you want the money to contractually do and when do you want those contractual guarantees to start? That's what I use to determine what type of annuity will provide the highest contractual guarantee.

In this case, an Immediate Annuity, they bought it with Roth IRA money, and that Immediate Annuity income coming to them every single month is tax-free. It's a pretty good deal. So, for Roth IRAs, IRAs, and non-IRAs, it really doesn't matter where you place that annuity. Qualified Longevity Annuity Contract's the only one with the rules that it's just the traditional IRA or there's some retirement account, 401k type areas that are allowing those in, but the vast majority in traditional IRAs. But you really can use annuities in any account type. The question is why. The question is, should you, and then if we decide that it makes sense, then the difference is just the taxation of the money coming out when you take money out.

With all that being said, this is a great example of why we need to talk and have a conversation. Suppose you continue to read these blogs, watch my videos, listen to my podcast called Fun with Annuities, and read my books, but you still haven't engaged with me. In that case, this is the reason you need to because I'm going to shoot it straight and be brutally factual and honest about which account type I think you should use.

I got a call the other day, great story. This guy calls us, and he goes, "I'm thinking about buying a lifetime income stream." He told us all the parameters for when he wanted to start, but we weren't sure which account type to use.

Now, do we give investment advice with anything other than annuities? No, we're an annuity specialist. But our conversation was fantastic because we asked him broad questions about his overall portfolio. How much is in your traditional IRA? Do you have a Roth IRA? How much is in your cash checking account type positions? And then, from there, we made a very good decision on where the annuity contractual guarantee should go for him, and it wasn't what he was thinking.

My decades and decades and decades of experience, I've been to that rodeo. There's not an annuity rodeo I haven't been to. So, we gave him my opinion. He was very happy with what we came up with from a contractual guaranteed standpoint, and he was really happy because I pointed him to the right account type to use. So, that's a great story and probably your story as well because if you're considering an annuity and you have one of any type, remember there are different types of annuities. You need to make sure you're putting that annuity type in the right account.

The bottom line, can you buy an annuity inside of an IRA, a Roth IRA, or a non-IRA? The answer is yes. The real question is, should you? That's when I encourage you to go to The Annuity Man, get my books, run quotes, schedule a call, and do all that great stuff. Thanks for joining me today.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.