Answers to questions about annuity, long-term care insurance, 401k
Question: What is the difference between annuitizing an annuity or using an income rider with an annuity?
Answer: Annuitization is the process of converting a sum of money into a lifetime payment stream. The most common options are “single life” where you are paid income for your lifetime, or “joint life” where you are paid income for you and your spouse’s lifetime.
At death the payments stop and there is no refund of principal under these basic options.
Much differently, by using an income rider to create lifetime income streams, any remaining principal passes to your heirs – a very important distinction.
Question: My mom needs more care than I can provide for her anymore, but she doesn’t have long-term care insurance. Any ideas how to make her money stretch?
Answer: There are actually some insurance companies who offer long-term care insurance designed for people already sick enough to need paid care. The policy is generally a lump sum deposit and they guarantee a payout for either a certain period of time or your mom’s lifetime.
It’s a great option for people who need care, but for whom running out of money is a concern.
Question: Why would someone contribute to their 401k on an after-tax basis? If they are not getting a tax deduction, what’s the point?
Answer: In 2014 the IRS pronounced that after-tax dollars within a 401k could be rolled over to a Roth IRA. So for people who otherwise make too much money to contribute to a Roth IRA directly, it is a great way get money into a Roth.
Having said that, there are a lot of IRS rules to abide by to execute the rollover correctly. You cannot just cherry pick the after-tax dollars and roll them over.
A tax professional is a must here — this strategy is not for the do-it-yourselfer.
Have Questions? Send your financial questions to Yvonne Marsh, CFP®, CPA at questions@marshpros.com, and she will review your question for possible inclusion in a future column.
