Co-written by Robert Bloink
Annuities can come with guarantees and features that add to the cost of the product, so it’s important that the client carefully select the annuity to make sure that it contains only features that are valuable enough to the client so that the associated costs are justified.
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Further, while the issue of surrender charges is mitigated by the fact that Roth IRA investments are generally meant to be long term, the client still needs to be made aware of the issue. If the client anticipates that the funds could be needed in an emergency before the surrender period has expired, an annuity investment may be a poor option.
The ideal candidate for a Roth annuity strategy is a client who has sufficient funds available outside of the annuity to cover reasonably anticipated expenses during the period in which surrender charges will apply.
For the right client, a Roth annuity can be a valuable alternative to traditional annuity investing—combining the powerful tax benefits of the Roth with the income security provided by an annuity can heighten the value of both investment strategies as a whole.
Originally published on Tax Facts Online, the premier resource providing practical, actionable and affordable coverage of the taxation of insurance, employee benefits, small business and individuals.
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Republished on ThinkAdvisor.com