Secondary Market Annuities can easily be purchased in qualified retirement accounts. Qualified funds may be in a Roth, a 401K, 403b, a Simple IRA, or other qualified vehicle.  To buy an SMA using qualified funds we need to utilize a self directed IRA.  Many self directed IRA custodian options exist but we have identified two with experience in the asset class with low costs. Rolling funds over from one custodian to a new one is a very simple process, but it can take a week or two.  For clients who are planning to use qualified funds, it often is best to open the self directed account first, even before you reserve a deal…

Self Directed IRA Custodians

The two self directed custodians we like are Provident and Gold Star Trust. Provident offers a host of IRA custodial services and have a specialized niche in the Secondary Market Annuities business. However, Gold Star Trust has recently proved to be a far superior service.  They are fast, low cost, offer excellent service to their customers, and have really won our loyalty. If you are interested in opening a Gold Star Trust self directed IRA account for the purchase of Secondary Market Annuities, please give us a call and we can start you on the simple and fast paperwork.

About Self Directed IRA’s

Self directed IRA’s are simply IRA’s held by a custodian that permits you to direct your own investments- you can chose to buy SMA’s, real estate, or any other sort of investment.  A self directed IRA custodian will not offer you investment advice- they just ensure the account is in compliance with the IRS. By contrast, many IRA’s held by brokerages like Schwab or Fidelity let you pick from only a few Fidelity or Schwab mutual funds- they are restricted and captive, and may  offer traditional stock picking advice.  Read about self directed IRA’s here.

Best Cases For Qualified Funds

IRA’s are designed to offer tax deferral for investors saving for retirement…. and they are designed to be SPENT in retirement as well.  Most investors can’t touch the money in their IRA’s for a long time, and too often, people shoot for income contracts in an IRA and produce income (and return of principal) that they can’t take out.  Instead, take advantage of these deferred interest rates and consider deferred lump sum cases.

RMD Details

Holding SMA’s in a qualified vehicle requires the custodian to calculate the Required Minimum Distribution (RMD) each year.  Be aware that long term deferred SMA contracts in qualified vehicles for investors over 70.5 years of age may be subject to RMD’s yet not produce cash flow.  Advisors should be sure there is sufficient money for RMD’s when using deferred contracts in IRA’s

Self Directed IRA Custodians

There are many self directed IRA custodians who most likely can accommodate SMA’s, but we work with two the most. Provident is a company that offers a host of IRA custodial services, however they have a specialized niche in the Secondary Market Annuities business, and IRAServices offers a comprehensive menu of investment options.

In most cases, IRAServices is the lower cost option, but contact us for a comparison of fees and analysis of which is best for your clients.  If you opt for Provident, be sure to contact us as we have a discounted fee agreement with them that saves you over 50% off their normal fees.

Investor funds are not required to open the account, but as it sometimes takes time to open, and then again to transfer money, we prefer to have IRA buyers open their accounts prior to reserving deals to prevent delays.

If you have an existing self directed IRA or want to use another custodian, please give us a call.  We can assist in making sure they understand SMA’s.

What Are The IRA Fees For Multiple SMA’s?

Depending on the custodian, there may be fees for adding multiple SMA’s to you IRA, but there are generally no fees for receiving funds from the insurance company into your IRA.

Now, depending on what you direct your custodian to do with your IRA funds in terms of distributions, you may incur fees, as outlined in their fee schedule.  That’s not something we control and is at your discretion.

Are Taxes Withheld?

None of the money coming in to the IRA from an SMA will be subject to withholding or taxation.  Money you direct to come out of your IRA for distribution to you however would be taxable.  Those withdrawals are all up to you and your accountant.

That said, lottery SMA’s ARE subject to withholding by the state lottery commission.  Typical lottery winners have a $0 cost basis in their prize so all the income is taxable and taxes are withheld by the lottery commission in  the state of issue for both state and federal.  But as you bought the lottery payment, you DO have a cost basis.

In this case, Lottery payments purchased in your IRA will require your IRA to file for a refund in the State that issues the lottery.  Provident does this on your behalf, and gets a refund for Federal and state taxes withheld on IRA’s in their custody.  This is one of the many services Provident provides, that other custodians may not provide.

Are There Carrier Fees?

While there are no fees to insurance companies, there may be minimal costs for payment servicing. Otherwise, SMA’s are What You See Is What You Get.

IRA custodians have fees, as laid out in their fee schedules.  How you choose determines the fees.

What about Custodian Fees ?

There are generally no costs associated with receiving a check into your IRA from an SMA.  There may be some minimal costs for adding multiple IRA’s, depending on your custodian. All custodians, however, have some costs for disbursements, and depending on your case and intentions, we can help determine which is best for you.

Now, depending on what you direct your custodian to do with your IRA funds in terms of distributions, you may incur fees, as outlined in their fee schedule.  That’s not something we control and is at your discretion.