How to Use a Roth Conversion with an Annuity for Tax-Free Retirement Income
Roth IRA conversions are a powerful tax strategy—especially when combined with the stability and guaranteed income of an annuity. By converting pre-tax IRA funds into a Roth IRA and then using those funds to purchase a fixed or indexed annuity, you create a tax-free income stream for life. This combo strategy can reduce your future Required Minimum Distributions (RMDs), limit exposure to rising tax rates, and enhance control over your retirement cash flow.
The timing of a Roth conversion is key. Doing it in lower-income years—such as after retirement but before Social Security or RMDs begin—can help minimize the tax impact. Once the funds are in a Roth, any future growth and withdrawals (after age 59½ and 5 years) are tax-free. If those funds are used to fund an annuity with a lifetime income rider, you now have guaranteed income that’s not only stable, but also tax-free.
This strategy also helps with estate planning. Unlike traditional IRAs, Roth IRAs don’t have lifetime RMDs, and your beneficiaries can receive the funds income-tax-free (depending on distribution rules). That makes Roth-converted annuities an excellent legacy tool as well.
At Diversified Insurance Brokers, we guide clients through strategic Roth conversions and help structure annuities that deliver guaranteed, tax-free income aligned with their long-term retirement goals.
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