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Jim Lentini: A guaranteed tax-free income

Posted: June 15, 2009 10:31 p.m.
Updated: June 16, 2009 4:55 a.m.
I have always stressed in financial planning what is tax-deductible, tax-deferred and tax-free.

Now, some of these vehicles that provide these tax advantage plans for retirement offer a new option in retirement planning.

During these challenging times and volatile markets, the following may provide some tax-free retirement-income planning.

The economy is still the great unknown. In helping clients plan for tomorrow, financial professionals are developing solutions based on what we know and what can be managed, since we don't know what will be coming at us next from Washington and Sacramento.

What we do know is that all of us will be paying more taxes in the future.

One solution, particularly those in higher tax brackets, is to provide a tax-free guaranteed lifetime income in retirement.

This can be accomplished by combining an annuity that offers a guaranteed lifetime income benefit with a Roth IRA.

For you nearing age 59 ½ or older, this strategy would entail funding a traditional IRA with an annuity offering guaranteed lifetime income that can be taken or deferred.

This can be accomplished through a rollover from a qualified plan, or by transferring existing traditional IRA assets to an annuity.

Then, the traditional IRA would be converted to a Roth IRA and federal income taxes owed on the conversion would be offset with the annuity's deferred income (discuss the option with your tax planner before execution).

If you are looking for greater control over your finances, particularly in these challenging financial markets, and need a plan that factors in these two components of a retirement strategy, you may want to evaluate this strategy offered by these two retirement vehicles.

A variable annuity with a living benefit, combined with a Roth IRA, can ensure that you will never run out of income and will know how much income you will receive.

And you won't need to pay federal income taxes when you are ready to access it.

Keep in mind that rolling over retirement plan assets or converting a Traditional IRA to a Roth means that federal income taxes on qualified assets are due upon the conversion.

This is why it is imperative to discuss this option with your tax planner after investigating the plans viability with your advisor.

Jim Lentini is President of Lentini Insurance & Investments, Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.


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