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have an annuity question?
have an annuity question?

3 reasons to consider putting an annuity in a Roth IRA

Roth IRAs are powerful savings vehicles – starting with the tax-free growth that they offer, along with the tax-free income – which can take on even more importance if (or better yet, when) income taxes go up in the future.

Likewise, annuities can also provide a way to save money for retirement on a tax-advantaged basis. But in this case, taxes on the gain in the account are simply deferred, so they will eventually be due, likely when the account has grown in the future. But annuities are the only financial product that can offer you guaranteed lifetime income, no matter how long you live.

So, given the benefits of annuities and Roth IRAs, does it make sense for you to combine the two?

Why It Could Make Sense to Put an Annuity in a Roth IRA Account

There are actually three good reasons why putting an annuity in a Roth IRA account can make a lot of sense. These include:

  1. Reduced risk while you’re saving for retirement
  2. The ability to boost the account value using rollovers
  3. Tax-free income for life after you’ve retired

1. Reduced risk while you’re saving for retirement.

Depending on the type of annuity you purchase, you could have the opportunity to attain market-linked growth, but without the risk of loss in a stock market downturn. For instance, the fixed indexed annuity bases its return on the performance of one or more underlying market indexes, such as the S&P 500 and the Dow Jones Industrial Average.

When the index performs well, the annuity is credited with a positive return – oftentimes up to a pre-set upper limit. In return for the limited upside potential, though, principal is protected – even if the tracked index(es) perform poorly during a given time period.

2. The ability to boost the account value using rollovers.

Although there are income and annual maximum contribution limits with Roth IRAs, there is no limit on how much money may be “rolled over” from other IRAs or employer-sponsored retirement accounts, such as 401(k)s. (Note that if you are transferring a traditional IRA or retirement plan into a Roth IRA, it will be considered a taxable transaction. However, going forward, there is no tax due on the income or withdrawals that are accessed from the Roth account.)

3. Tax-free income for life after you’ve retired.

One of the biggest benefits of the Roth IRA is the tax-free income and withdrawals that may be taken from it. This, combined with the guaranteed lifetime income stream from an annuity, can allow you to essentially generate tax-free lifetime income – even in the event that income tax rates rise in the future (which they are highly likely to do).

Based on this, combining the Roth IRA with an annuity could provide a win-win scenario in terms of protection from taxes, as well as a defense against running out of income later in life – regardless of how long you may need it.

Is an Annuity Right for You?

Before deciding whether you should or shouldn’t put an annuity into an IRA account, it is important to determine if an annuity makes sense for your portfolio at all, based on your short- and long-term objectives. If so, the next step is to narrow down which type of annuity is best.

There are actually many different annuities available in the marketplace, and they all come with a fair amount of “fine print.” With that in mind, it is recommended that before you make a long-term financial commitment that could be expensive to get out of, you discuss your objectives with an annuity specialist.

At Annuity Gator, our primary mission is on educating consumers and financial advisors on how annuities work, so that they better understand all of the “moving parts.” This, in turn, can help you to know what you can – and can’t – anticipate in terms of performance.

So, if you would like to set up a time to chat with an Annuity Gator professional, feel free to call us directly at (888) 440-2468 or send us an email by going to our secure online contact form. We look forward to assisting you.

3 reasons to consider putting an annuity in a Roth IRA

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