Money faucetA new rule is allowing investors to use annuities in retirement to help save on taxes. The IRS now gives Individual Retirement Account (IRA) owners the ability to invest in annuities inside their retirement accounts without worrying about minimum distributions.

One of the downsides of an IRA is that you are required to take minimum distributions from the IRA beginning at age 70 ½, whether you need the money or not. This means you will have to pay taxes on the distribution and your investment will not continue to grow at the same rate because there is less money in the IRA.

A new tax rule now allows you to invest 25 percent of your IRA or 401(k) account balance or $125,000 (whichever is less) in a deferred annuity, and you won’t have to take required minimum distributions on that money. A deferred annuity -– also called longevity annuity — allows you to invest a lump sum and receive a guaranteed lifetime payout that starts at a later date. The longer you defer payouts, the more money you will get.

Under this rule, you can buy a deferred annuity for up to $125,000 with your IRA assets and defer the payments until you need them. The value of the annuity contract is excluded from the plan balance that is used to determine the required minimum distributions. If you die before all the money you invested is paid out, the amount of the original investment not paid out is returned to your account, so it can go to your heirs.

For more information about this new rule, click here