Social security is the biggest annuity anyone in the US has. Delay drawing until full retirement age is the biggest factor for optimal performance. If you can.
My mom’s FA has her in a CD ladder right now as interest on them is a historical high.
We have less in bonds right now as they haven’t preformed as well as in the past. Still have some, but less of a percentage than we could. Our FA was pleased with our strategy. Well it was his recommendation
Bond/Treasury ladder is for those that want a specific amount of cash as a point certain, with zero risk, and don’t feel comfortable timing the market, which is what ‘sliding back into equities’ would be.
Personally, I agree that Funds are easier, and that’s what I do. For rebalancing, I keep a tranche of $ in Intermediate Treasury funds inside my 401k/rollover tIRA.
Okay, I think I understand. You’re not using the annuities to rebalance, you’re using them for income. Personally, I don’t think I would like paying taxes to get them out of the 401K, but hopefully these are tax free annuities so that’s the end of the taxes.
I prefer to leave everything in my 401K/Roths, and just pull from them only what we need, when we need it, trying to stay at the 24% tax rate as a maximum. If the equity level goes up too high, I transfer some funds from equity to high paying money market, and then sell from those if we need cash. I like having our pensions, but it forces us into a situation where we will never have the flexibility of being in a low tax bracket, so it’s not worth doing Roth conversions. Everyone has their own system, looks like yours is working for you.
I have also highly encouraged my kids to max out their Roths. Though they still aren’t 100% certain it’s the right thing to do for their situations, they still do it based upon my nagging.
He should be happy at the strategy, it was genius!
Never found annuities (like whole life) very attractive. You are paying someone to take and use your capital to generate an income stream (and take some from the top) that you can replicate and in which you have more flexibility.
How long do you have to keep brokerage statements again? Do you really need the original transaction papers?
Our idea of rebalancing inside the 401k is to have assets within the funds that do the best long term, while also having less downswing with downturns of the stock market values. Have studied the funds to get where we are at now. We currently are in 3 investment groupings offered within the 401k: a large cap growth, a small cap growth, and Fidelity 500 Index fund.
As long as you know the original transaction date and basis, you don’t need to save them at all.
Most brokerages now track that info as well, so it’s there when you sell something.
The one form you may want to keep, if applicable, is Form 5498. It documents Roth IRA contributions which could be important if one ever moves brokerage firms and wants to take a distribution from Roth prior to retirement age.
I remind my children to do this with limited success.
If they don’t keep a copy, that seems like it would be easy to document by getting the info from the brokerage website. Ours shows transactions from way back when.
My mid-20’s children have already moved their Roth accounts from one brokerage to another, which is why I included the comment about changing brokerages above.
I don’t believe their new brokerage knows the basis of the Roth balances they transferred over, but I admit that I do not have access to their accounts.
That makes sense, I wouldn’t think that they would know. Then again, I don’t know that the IRS could make you prove in any way that you’re only taking out contributions, and that they could know when/what you contributed.
I don’t know either, but my vague understanding is that the basis can be removed at any time w/o any tax or penalty, but that earnings withdrawn before 59.5 are subject to tax + 10% penalty.
This is for Roth IRA accounts only. Roth 401K withdrawals are prorated between contributions and earnings, with early withdrawals subject to tax + penalty on the earnings portion. In other words, any early withdrawal from a Roth 401K will incur taxes.
Truly off topic here…but an explanation of why I think it is important to retain Form 5498.
Vanguard only tracks original transactions and basis in a way you can access them back to 1/1/2012 when the new regs were passed. We have mutual funds going back as early as 1985 when I worked at Vanguard, and we painstakingly deposited $100/mo. So many small purchases, so many divs/CGs reinvested… We’ve always saved our year-end statements and stuck them in our tax files. So much for culling old stuff! Not sure if FIFO will help us or hurt us, but H wants to have it all on hand.
ETA: Here’s a summary of the regs and reporting requirements…
Follow the new cost basis rules when reporting stock sales - CSH.
There is a very wide variety of annuities, and it does take someone very knowledgeable to understand obtaining the ‘right’ one - retaining the value of the investment and having a solid income stream. Different than whole life insurance purchase. That has been the key with our Financial Advisor – he has done the research and is up to date on evaluating annuity opportunities. This has been our choice to reduce our overall portfolio risk.
Whole life is a type of life insurance, not annuity.
What is a tax free annuity?
I understand that. The parenthetical was not great – I did not mean to create a subset. My point was that whole life is also unattractive for the same reason as annuities. I always bought term life for the life insurance and handled investments directly and through my financial adviser when I had enough assets.
For some the convenience and certainty (as long as your provider remains solvent) of a prepackaged income stream is attractive. My point is that when you purchase an annuity, you are paying someone and giving someone the use your of capital to produce an income stream that you can more or less replicate at lower frictional costs.
I don’t know a lot about annuities, but I believe you don’t have to pay taxes on the distributions if you put them into a Roth. Otherwise, I believe you’d have to pay taxes on the distributions at whatever your tax rate is.