Annuity Strategies for 401(k), 403(b) and IRA Accounts

Gains in tax-deferred plans, such as 401(k), 403(b), IRA plans, are not taxed until distributed. Similarly, gains in annuities are not taxed until distributed.

It is possible to fund an annuity with assets from a tax-deferred plan. The conventional wisdom, however, is that it makes no sense to fund a tax-deferred annuity using money that is already in a tax-deferred plan.

But, annuities have other benefits besides tax-deferral, and those other benefits are the reasons to consider using plan assets to invest in an annuity.

Review the substantial benefits (and some limitations) of fixed index annuities, FIAs, on the Annuities-Intro subpage.

Tax-deferred plans do not protect assets against market risk and they do not offer living benefits. Owners of tax-deferred plans suffer the same anguish as anyone else invested in the markets during times of volatility and negative returns. And, they suffer the stress of uncertainty even when markets are in positive territory.

Especially as an individual or couple approaches retirement age and can no longer risk negative account performance, the advantages of investing plan assets in annuities should be considered.

Qualifying Longevity Annuity Contract (QLAC). The owner of an IRA or a qualified retirement plan (e.g., 401(k), 403(b)) may invest up to $130,000 (as of 2019) in a QLAC. A QLAC is similar to other longevity annuities, except that RMDs (required minimum distributions) may be delayed up to age 85. A longevity annuity can be useful to assure a certain level of income during retirement. A drawback is that its assets grow at a fixed rate that can be lower than in an indexed annuity.