Spia

[PFAKENNY]

What is the name of your state? CA

I have 401K worth of 1.3Million and think buying SPIA(Single Premium Immediate Annuity)
Can I put all 1.3Million to buy SPIA directly or less because of tax liability for 401K distribution?
If I can, can I still withdraw from SPIA tax free?

Thank you for your advice.

 

[anteater]

If the 401k money is all pre-tax, the payments from the immediate annuity will be fully taxable.

 

[sturgbe]

PFAKENNY,

Why are you considering a SPIA? Like anteater stated, since the money is currently pre-tax (Qualified), all withdrawals will be taxed at ordinary income. You may transfer it into a SPIA tax free but once withdrawal start, they will be taxed at ordinary income rates.

Withdrawals from Non-Qualified SPIA would include an exclusion ratio...which may provide tax benefits.

Are you considering a SPIA because you want income for life or are you using this for some other idea?

I hope this helps a little.

sturgbe

 

[tranquility]

I am also confused as to your goal or the facts that make this a good option. Annuities are expensive. I assume there is a reason why the 401(k) is going to be cashed out, but wonder why an IRA wouldn't be a better option. Are you at risk of a lawsuit or divorce and are trying to protect the income stream or something?

 

[sturgbe]

tranquility,
How are annuities expensive? More specifically, how is a SPIA expensive? As far as cahing out the 401k, I think the words "cashing out" are not what is intended. I believe they are talking about a 'rollover' into a SPIA.

 

[anteater]

The OP has stated that he/she will be receiving a monthly pension of $20,000 per month, in addition to having the 401k, and is desperately seeking a way to minimize income tax liability.

(Yes, I am a bit skeptical about the $20K/month pension. But who knows?)

 

[tranquility]

Cashed out was a poor term and more imprecise than I usually write. I recongnize the rules to put the investment into another vehicle without causing a taxable distribution.

Annuities are expensive because of the fees involved. The sales person gets his and the insurance company gets theirs. Rarely have I found an annuity to perform better than a similar investment in other forms. Circumstances are rare where the annuity is the best bet.

I didn't see the $20k/month pension. Even then, the only advantage of the annuity over an IRA would be in the delay of the distribution and not immediate distribution. The RMD of an IRA (sounds like the start of a song) may be a problem for those with that much current income. There, an annuity which delays distribution may be useful. (If it is inheritable.)

 

[anteater]

Annuities are expensive because of the fees involved. The sales person gets his and the insurance company gets theirs. Rarely have I found an annuity to perform better than a similar investment in other forms. Circumstances are rare where the annuity is the best bet.

I tend to agree with you on variable annuities although some of the rider guarantees may be attractive to some folks for peace of mind purposes. Problem with most of those is that you have to be a bloody actuary to figure out if it is a decent deal. Immediate annuities are pretty competitve and generally have low commissions. Also, companies like Vanguard offer them directly.

I didn't see the $20k/month pension. Even then, the only advantage of the annuity over an IRA would be in the delay of the distribution and not immediate distribution. The RMD of an IRA (sounds like the start of a song) may be a problem for those with that much current income. There, an annuity which delays distribution may be useful. (If it is inheritable

The $20K/month pension was in some posts on the Tax Forum. I understand what you are saying about delaying distribution, but that would apply to non-qualified money purchasing a deferred annuity. The "problem" for the OP is that it is qualified money and will have to start coming out at 70-1/2 no matter where it is stashed.

(Oy, I have should have such problems!!)

 

[sturgbe]

It is true that some VA's have a cost issue. That said, there are no fees with a fixed annuity. A SPIA may have a premium tax at issue but there are no ongoing fees. I think the OP was considering a SPIA for the immedaite income...ie; life with 10/20 or whatever.

I didn't see the other thread about $20k either. Is this amount in addition to the 401k? Or is the 401k going to provide the $20k?

 

[anteater]

https://forum.freeadvice.com/showthread.php?t=360783

Too much retirement income

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What is the name of your state? CA

What is the best way to minimize ordinary income tax liability as much as possible when I retire at 65(62 now)? I will receive $20,000 a month from company's pension plan and around $10,000 from annuity (rollovered from 401K currently hold for $1.3Million)
Any suggestions??What is the name of your state?

I forgot that this makes it sound as if the OP has already purchased the SPIA.