IRA to Annuity: Is It a Good Idea?
Moving IRA funds into an annuity is one of the most common retirement planning strategies — and one of the most debated. Here’s an honest look at both sides.
Why It Can Make Sense
- Longevity protection: An annuity guarantees income no matter how long you live — your IRA balance can run dry, an annuity can’t
- Sequence-of-returns protection: A market crash in early retirement can permanently damage a portfolio; a fixed annuity is immune
- Behavioral benefit: A guaranteed paycheck reduces the urge to panic-sell during downturns
- Tax efficiency: Tax deferral inside an IRA is redundant — but the income guarantees still have value
Why It Might Not Make Sense
- Redundant tax deferral: IRAs already grow tax-deferred; the annuity’s tax deferral adds no additional benefit
- Surrender charges limit flexibility: IRAs offer full access to funds; annuities lock you up for 7–10 years
- RMDs must still be taken: Even inside an annuity, qualified annuities require RMDs at 73
- Fees: Variable annuity fees inside an IRA are particularly costly given the redundancy
The Best Fit: Fixed or Indexed Annuities
If you’re going to put IRA money into an annuity, fixed and fixed indexed annuities make more sense than variable annuities. You’re paying for the income guarantee and principal protection — not for tax deferral. Variable annuities inside IRAs are widely criticized by financial planners.
Key Questions to Ask
- Do I have other sources of guaranteed income (pension, Social Security) that cover my basics?
- What percentage of my IRA would go into the annuity?
- Do I need access to this money for emergencies?
- How long is the surrender period?
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