Annuity

Annuities come in two different types, based on how the investment vehicle is funded - an immediate annuity, or a deferred annuity. Immediate annuities are where the insurance product is funded in one lump-sum. In return, the investor begins receiving immediate tax-deferred income. Conversely, with a deferred annuity, structured periodic payments are made to the investment vehicle. During one’s retirement years, the accumulated funds provide a guaranteed income stream.

The IRS has outlined the 4 most common types of annuities available to investors and defined them as thus:

“Fixed period annuities - pay a fixed amount to an annuitant at regular intervals for a definite length of time.

Variable annuities - make payments to an annuitant varying in amount for a definite length of time or for life. The amounts paid may depend on variables such as profits earned by the pension or annuity funds or by cost-of-living indexes.

Qualified employee annuities - a retirement annuity purchased by an employer for an employee under a plan that meets certain Internal Revenue Code requirements.

Tax-sheltered annuities - a special annuity plan or contract purchased for an employee of a public school or tax-exempt organization.”

Annuities sometimes have much higher annual fees than other investment accounts like IRAs.

Similar to an IRA, earnings are not taxed until the funds are withdrawn. The IRS regards the withdrawal from an annuity as income, and taxation is income tax.

The IRS has strict regulations and rules pertaining to a rollover. As per IRS guidelines, if an annuity was part of a qualified retirement plan than the movement of funds is recognized as a qualified transfer. As the IRS explains, “if an annuity contract was distributed to you by a qualified retirement plan, you can roll over an amount paid under the contract that is otherwise an eligible rollover distribution. For example, you can roll over a single sum payment you receive upon surrender of the contract to the extent it is taxable and isn't a required minimum distribution.

In addition, funds can only be rolled over once in a 365-day period from a specific retirement plan. As per the IRS rules, there will be no taxation on those funds.

The primary benefit of rolling over an annuity that was part of a qualified plan, into a self-directed IRA like a Precious Metals IRA, is that this type of retirement account permits a myriad of diversified assets not allowed in other retirement vehicles. In addition, a self-directed IRA is solely managed by you the investor. Although under federal law, you must have a custodian who acts as an administrator over this type of retirement vehicle.

In essence, the IRS has imposed little restrictions on what you can hold in a self-directed IRA. Unlike many other retirement accounts, a self-directed IRA can be used to invest in everything from precious metals like gold and silver, to real estate, to commodities. Akin to other IRAs, the only investments not allowed in a self-directed IRA are S corporation stock, collectibles, and insurance investments.

No! It is crucial to note that as per IRS rules, an annuity cannot be used to invest in physical precious metals bullion. The easiest method to invest in gold, or another precious metal with a variable annuity is to buy mutual funds that include mining company stocks, or invest outright in the shares of gold mining companies. This investment strategy is known as purchasing “paper gold.” Mining ETFs and gold ETFs also provide indirect exposure to precious metals.

In 1974, Traditional Individual Retirement Accounts (IRAs) were first introduced through the Employee Retirement Income Security Act (ERISA). An IRA is an investment vehicle specifically designed to accumulate funds for retirement. The savings within an IRA are not subject to taxation, until withdrawn from the retirement account.

Two simple criteria must be met for opening a traditional IRA: being under 70 ½ years old, and earning taxable income. As of 2020, the IRS rules for annual contribution limits to a traditional IRA is $6,000 ($7,000 for those 50 years old or older), or cannot exceed “your taxable compensation for the year, if your compensation was less than this dollar limit”.

For 2020 and beyond, there is no longer any age limit to making contributions to either a traditional IRA, or a Roth IRA. Similar to other types of retirement accounts, traditional IRAs have a 10% early-withdrawal penalty on the funds if you make distributions prior to 59 ½, with the IRS making some exceptions in extenuating circumstances. Required minimum distributions (RMDs) are applicable to traditional IRAs. New IRS regulations regarding withdrawals based upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act outline that if an individual turned 70 years old on July 1, 2019, or later, then withdrawals from a traditional IRA are not mandatory until the individual turns 72.

A traditional IRA offers numerous investment options, however, the IRA custodian may limit the sort of assets that you can choose from. It is important to note that the IRS does not permit funds from a traditional IRA to be invested in physical assets such as precious metals bullion or real estate.

Conversely, an annuity is defined by the IRS as “a contract that requires regular payments for more than one full year to the person entitled to receive the payments (annuitant). You can buy an annuity contract alone or with the help of your employer”. These contracts are purchased through insurance providers come in two different types, based on how the investment vehicle is funded - an immediate annuity, or a deferred annuity. Immediate annuities are where the insurance product is funded in one lump-sum. In return, the investor begins receiving immediate tax-deferred income. Conversely, with a deferred annuity, structured periodic payments are made to the investment vehicle. During one’s retirement years, the accumulated funds provide a guaranteed income stream.

The three most popular types of annuities are fixed, variable, or indexed.

Investing in precious metals such as gold is an excellent hedge to protect your investment portfolio against economic uncertainties and inflation. A diversification strategy that includes gold (or other precious metals) not only protects your portfolio against market turmoil, but gold also provides significant growth potential. A simple method for diversification is to open a self-directed IRA.

The Internal Revenue Agency (IRS) has stringent regulations on what types of gold and silver are permitted in an IRA. Essentially, the criteria include the purity levels of the gold or silver, and where it was minted. It is crucial to understand that only specific bullion coins and bars which meet IRA-approved purity levels are permitted in this type of retirement vehicle. Some examples of bullion coins that are approved by the IRS for investing in an IRA include American Eagles, Canadian Maple Leafs, and Austrian Philharmonic.

It is imperative to understand that the IRS does NOT permit things like collectible coins or numismatics as an IRA account. Any reputable IRA company will only recommend IRA-approved gold and silver bullion coins and bars. Be wary of any Gold IRA company that attempts to push collectible coins or numismatics as an investment option for an IRA - their intentions will be dubious.

A Gold IRA company is a firm that acts as a custodian for the entirety of the process for setting up Gold IRAs (in addition to other Precious Metals IRAs). The process entails setting up the account, an IRA rollover or custodian-to-custodian transfer, purchasing IRA-approved precious metals, and storing precious metals in an accredited IRS-approved depository. Usually, Gold IRA companies have established relationships with traditional IRA custodians, IRS-approved accredited depositories, and precious metal dealers, which makes the process seamless for clients.

It is crucial to understand that under federal law if you open a self-directed IRA (including a Precious Metals IRA), you must have a custodian.

This is solely dependent on your personal preferences. What Gold IRA company you choose is contingent on what components are most important to you, whether it is storage options, ratings, or client services, amongst other factors. Once you have decided on your personal preferences, select numerous companies, then contact them to receive more information pertaining to both the respective firm and products offered.

Sometimes any movement of money from one retirement plan to another is often referred to as a “rollover”. However, the IRS has specific definitions for a rollover and a transfer. As per the IRS definition, a rollover occurs when the funds being moved are paid to you directly, and you then deposit the money into the other retirement vehicle.

The IRS has strict regulations and rules pertaining to an IRA Rollover. The guidelines outlined by the IRS for an IRA rollover include having 60 days to deposit the money you have received, in the custodian of your choice. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.

If you receive distributions from a retirement plan and you rollover into another retirement plan, as per the IRS rules there will be no taxation on those funds. In addition, funds can only be rolled over once in a 365-day period from a specific IRA.

In a trustee-to-trustee transfer (as the IRS has deemed it) you request that the original IRA custodian transfers the funds to the new IRA custodian. With a trustee-to-trustee transfer, you never touch the funds and the money transferred is not subject to taxation.