Annuities in an IRA?!!
A common view is that this combination makes no sense, since the IRA already provides the same tax deferral benefits as the annuity wrapper. But when purchased for lifetime income–in my opinion, the runaway winner among reasons to buy an annuity anyway–a surprisingly nice RMD benefit may be available (consult your CPA for your tax situation!), which I term an “RMD shield” in my latest article on Advisor Perspectives.
The “RMD shield” refers to the fact that when qualified annuities distribute cash flows in excess of their own RMDs, the extra payouts can be applied to the RMDs of other IRA assets. This shields non-annuity IRA assets from having to bear their own full RMD burden. Due to 2024 changes in RMD rules, immediate annuities may carry this benefit, but the “RMD shield” can be especially attractive for cash-value annuities (e.g., FIAs/VAs), because the annual income should reduce the cash/accumulation value much faster than the actuarial value of the income benefit itself. The cash value is the basis for the RMD calculation until it reaches zero, at which point the calculation reverts to immediate annuity treatment.
Annuities with a high income-to-cash-value ratio can cover both their own RMDs and a substantial portion of the RMDs for non-annuity assets in an IRA!
Details in the article! (But again, the details are general illustrations for educational purposes only; consult your tax advisor for your situation.)
https://www.advisorperspectives.com/articles/2024/12/03/annuities-ira-surprising-rmd-advantage-fias-or-vas
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