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Our MissionTo provide unbiased accurate information on variable annuities, by providing a third party evaluation and ranking of the major variable annuity provider's contracts.
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Variable AnnuityIRA
It has been very controversial to use a variable annuity in an IRA and I get asked fairly frequently if this is a good or a bad thing. I am on the fence about this issue myself, but I do feel they are appropriate in some circumstances.
I must address this double tax deferred issue that most critics argue make annuities bad in an IRA account. There is no such thing as double tax deferral it only exists in the minds of the critics. Now, I can see their point to not paying the extra M&E fee for a variable annuity inside of an IRA account and that is a valid argument. What they do fail to realize is that if you are buying mutual funds there are going to be fees no matter where you invest your money. In fact even no-load mutual funds have management fees attached to them, some fees are greater than others, but none the less you are paying for the funds expenses.
What are you going to get for the M&E charge? You will get a death benefit, which in the event you pass away, your beneficiaries will receive at least what you put into the contract, minus any withdrawals. You will get, if you elect it, a living benefit which will guarantee your money is returned to you in one fashion or another. You will get an asset allocation program, most variable annuity companies use asset allocation models put together by the likes of Standard and Poor’s, Ibbotson’s and Morningstar. You will receive multiple fund choices from a variety of mutual fund families and you may switch in between them without incurring any sales charges.
Critics will argue that you will never need the death benefit, or very rarely will your beneficiaries ever need it. They also claim that you will probably never need the living benefit guarantees. They claim that for the expense you pay you get very little out of the variable annuity contract. I want to say that everyone is entitled to their own opinion that is what makes this country so great and it is also what makes a market. Critics certainly have the right to criticize and I will not take that away from them.
I do believe, however, that they are over looking some of the obvious reasons that variable annuities can and do make sense in an IRA. First, I dare them to make these criticisms to a beneficiary who received a check from an insurance company in 2000 to 2002 when the market was severely down from the 1999 highs. These beneficiaries were probably pretty grateful to receive their death benefits, which were higher than the cash value of the contract. Second, to those smart enough to own them, I would like them to make those criticisms to the people who bought living benefits in 1999 or early 2000, I think these people look pretty smart.
They say you will never need to use these benefits and they may be right, only time will tell. Here is what I do know and what they know as well, the market moves in cycles we have up times and we have down times. We have been blessed to have 20 years of a bull market with very few pull backs. I do think that having these 20 years of a bull market has numbed the critics to the fact that we can and probably will have a prolonged bear market again.
It is easy to say that the market will always provide you with what you need and with a long term bull market you will be proven right. What they fail to see is that if we hit a period of time like the 1970’s then many American’s can and will be in trouble. Since we have not saved enough we are dependent on positive investment returns to make it through our golden years. A prolonged bear market can create havoc for the average retiree. I do find it ironic that the criticisms about variable annuities had a lull in 2000 to 2002 where variable annuity supports were right and critics were wrong.
Past returns are certainly never a guaranteed future result and that is a disclaimer that brokers have to use all the time. Yet, the critics use this example to point to the negative about variable annuities. They, like the rest of us, have no idea what the future will hold so my question is how can they assure us that you will never need any of these guarantees?
I will say that I have no idea what they market will do for us tomorrow or 10 years from now. It is possible that the critics might be right, but it is also possible that I am right and you will need these benefits. I am also not saying that a variable annuity is right for everyone, just like mutual funds and real estate investments are not right for everyone; I am saying that variable annuities are worth examining with your financial advisor.
Most experts are now saying that between 20 and 30% of your assets should be in some kind of annuitizable asset, such as an annuity. Having an annuitizable asset will guarantee you to have income in the future and that is what a variable annuity, especially with a living benefit, can provide for you.
It is easy for variable annuity supporters and their critics to throw stones at each other. I think that is totally unproductive, it gets zero accomplished other than confusing the consumer. I believe we both have valid points and I believe that we should present all the facts when we make a case for or against variable annuities.
I do not believe you should buy a variable annuity based upon reading this article. I would also say I do not think you should not buy a variable annuity based on someone’s article against annuities. You and your advisor need to ask yourself questions and see if a variable annuity is right or not right for your needs. Remember, we do not know your or your situation so take everything we write with a grain of salt. If you are going to buy an annuity you should certainly get the research provided by Annuity IQ.
An important note about Annuities and IRAs Let me be loud and clear about this, there is no tax benefit, at all, to having your IRA invested inside of a variable annuity. Anyone who claims you can avoid required minimum distributions (RMD’s) from your IRA by using a variable annuity as the funding vehicle is misinformed. An RMD is mandated by the IRS and cannot be avoided and if you fail to take your RMD at 70 ½ then the IRS has severe penalties in place.
I must address this double tax deferred issue that most critics argue make annuities bad in an IRA account. There is no such thing as double tax deferral it only exists in the minds of the critics. Now, I can see their point to not paying the extra M&E fee for a variable annuity inside of an IRA account and that is a valid argument. What they do fail to realize is that if you are buying mutual funds there are going to be fees no matter where you invest your money. In fact even no-load mutual funds have management fees attached to them, some fees are greater than others, but none the less you are paying for the funds expenses.
What are you going to get for the M&E charge? You will get a death benefit, which in the event you pass away, your beneficiaries will receive at least what you put into the contract, minus any withdrawals. You will get, if you elect it, a living benefit which will guarantee your money is returned to you in one fashion or another. You will get an asset allocation program, most variable annuity companies use asset allocation models put together by the likes of Standard and Poor’s, Ibbotson’s and Morningstar. You will receive multiple fund choices from a variety of mutual fund families and you may switch in between them without incurring any sales charges.
Critics will argue that you will never need the death benefit, or very rarely will your beneficiaries ever need it. They also claim that you will probably never need the living benefit guarantees. They claim that for the expense you pay you get very little out of the variable annuity contract. I want to say that everyone is entitled to their own opinion that is what makes this country so great and it is also what makes a market. Critics certainly have the right to criticize and I will not take that away from them.
I do believe, however, that they are over looking some of the obvious reasons that variable annuities can and do make sense in an IRA. First, I dare them to make these criticisms to a beneficiary who received a check from an insurance company in 2000 to 2002 when the market was severely down from the 1999 highs. These beneficiaries were probably pretty grateful to receive their death benefits, which were higher than the cash value of the contract. Second, to those smart enough to own them, I would like them to make those criticisms to the people who bought living benefits in 1999 or early 2000, I think these people look pretty smart.
They say you will never need to use these benefits and they may be right, only time will tell. Here is what I do know and what they know as well, the market moves in cycles we have up times and we have down times. We have been blessed to have 20 years of a bull market with very few pull backs. I do think that having these 20 years of a bull market has numbed the critics to the fact that we can and probably will have a prolonged bear market again.
It is easy to say that the market will always provide you with what you need and with a long term bull market you will be proven right. What they fail to see is that if we hit a period of time like the 1970’s then many American’s can and will be in trouble. Since we have not saved enough we are dependent on positive investment returns to make it through our golden years. A prolonged bear market can create havoc for the average retiree. I do find it ironic that the criticisms about variable annuities had a lull in 2000 to 2002 where variable annuity supports were right and critics were wrong.
Past returns are certainly never a guaranteed future result and that is a disclaimer that brokers have to use all the time. Yet, the critics use this example to point to the negative about variable annuities. They, like the rest of us, have no idea what the future will hold so my question is how can they assure us that you will never need any of these guarantees?
I will say that I have no idea what they market will do for us tomorrow or 10 years from now. It is possible that the critics might be right, but it is also possible that I am right and you will need these benefits. I am also not saying that a variable annuity is right for everyone, just like mutual funds and real estate investments are not right for everyone; I am saying that variable annuities are worth examining with your financial advisor.
Most experts are now saying that between 20 and 30% of your assets should be in some kind of annuitizable asset, such as an annuity. Having an annuitizable asset will guarantee you to have income in the future and that is what a variable annuity, especially with a living benefit, can provide for you.
It is easy for variable annuity supporters and their critics to throw stones at each other. I think that is totally unproductive, it gets zero accomplished other than confusing the consumer. I believe we both have valid points and I believe that we should present all the facts when we make a case for or against variable annuities.
I do not believe you should buy a variable annuity based upon reading this article. I would also say I do not think you should not buy a variable annuity based on someone’s article against annuities. You and your advisor need to ask yourself questions and see if a variable annuity is right or not right for your needs. Remember, we do not know your or your situation so take everything we write with a grain of salt. If you are going to buy an annuity you should certainly get the research provided by Annuity IQ.
An important note about Annuities and IRAs Let me be loud and clear about this, there is no tax benefit, at all, to having your IRA invested inside of a variable annuity. Anyone who claims you can avoid required minimum distributions (RMD’s) from your IRA by using a variable annuity as the funding vehicle is misinformed. An RMD is mandated by the IRS and cannot be avoided and if you fail to take your RMD at 70 ½ then the IRS has severe penalties in place.
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