There are many potential benefits to purchasing the Kindur Assured Income annuity, with guaranteed lifetime income and tax deferral being top of mind. When choosing which of your accounts to fund an annuity from, it often makes sense to fund in the following order:
- First from a taxable account - this will enable you to benefit from additional tax deferral as well as guaranteed income.
- Second from a traditional IRA - as discussed below, purchasing an annuity out of a traditional IRA, as opposed to a Roth IRA, may have estate planning advantages while also enabling you to benefit from guaranteed income.
- And lastly from a Roth IRA - purchasing from a Roth IRA will still enable you to benefit from guaranteed income.
When considering the guidance above, it is important also to understand your personal situation which may suggest changing the order of account funding. Some scenarios include:
- Maintaining liquidity of assets: if you are under the age of 59 ½ you may prefer not to purchase your annuity with your taxable account and instead decide to fund your annuity purchase with an IRA or Roth IRA in order to preserve liquidity. Both IRA and Roth IRA accounts can be used to purchase your annuity without incurring any early withdrawal penalties. By contrast, if you are under 59 ½ and need to access your IRA or Roth IRA account for liquidity, you will likely incur early withdrawal taxes.
- If you plan to leave assets to heirs: typically Roth and taxable accounts are preferred accounts for passing on assets from an inheritance perspective in comparison to a traditional IRA. If this is a situation you are concerned about, you may prefer to fund from a traditional IRA first.
- Tax bill associated with taxable account: Depending on the makeup of the assets in your taxable account, liquidating the account to purchase an annuity may result in a tax liability that you will owe. In this situation you may prefer to fund from a traditional IRA first.
Note: Everyone's particular tax circumstances are unique. Kindur is not a tax advisor or estate planner. Any information in these FAQs should not be considered tax advice and should not be relied upon for estate planning purposes. Please consult a tax professional or an attorney if you have any questions about your situation.