Annuities can be purchased inside an IRA, but is an IRA the right home for an annuity? The debate has raged for years and the answer depends on which advisor you talk to. But considering the fact that as many as one-half of variable annuities sales are made in an IRA rollover, the question is key for all annuity producers. The answer turns on whether the producer can sufficiently separate and identify the tax and non-tax client objectives that justify selling a tax deferred product to a tax exempt plan.

No Double Deferral

There’s no such thing as double tax deferral, leading to the biggest client complaint of all about purchasing an annuity in a tax deferred account such as an IRA: An annuity doesn’t offer additional tax deferral when purchased in an IRA, eliminating one of the product’s primary selling points.

Instead, many financial services professionals recommend purchasing investments, such as stocks, that do not otherwise offer tax deferral in a tax deferred account; and if there’s money left over, consider purchasing an annuity outside the account. An investor can sock away only $5,000 a year in an IRA, why “waste” some of the account’s funds by buying an annuity?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see Annuity Respect: Earning It! (CC 11-150) & Annuities: They Get No Respect (CC 11-120).

For in-depth analysis of annuities, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

 Email This Post
This entry was posted on Wednesday, November 30th, 2011 at 8:05 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.