This Often-Overlooked Way to Fund Your Roth IRA Has Many Advantages

A Roth IRA is a uniquely powerful retirement savings tool, because you won’t pay taxes on the money you withdraw during retirement. An annuity is a way of generating guaranteed income. Put them together, and you have a powerful retirement protection tool that can provide guaranteed income for life, with a big plus: It’s completely tax-free.

Anyone may roll over part or all of an existing Roth to a Roth annuity.  You may transfer all or part of the funds in an ordinary Roth to a Roth annuity. While there are income and contribution limits for new money going into a Roth IRA, they don’t apply to rollovers — including rollovers to a Roth annuity.

Different types of annuities accomplish different things and have distinct pros and cons — like the Swiss army knife of personal finance. Since they’re so varied, one type or another can work well for a Roth IRA.  Investment choices, fees and contract provisions vary, so work with an annuity agent who will educate you about your choices and clearly lay out the pros and cons.

What kind of annuity works for a Roth? It depends on which stage of your financial life you’re in. In the accumulation stage, you’re building wealth for retirement. In your decumulation stage, you’re retired and receiving income from your savings.

Here’s how Roth annuities can work in each stage.

Building wealth for those approaching retirement

One attractive option is a fixed indexed annuity. With the stock market continuing to break records, it may be vulnerable to a major long-term downturn. When you’re young, you can ride out the ups and downs. But if you’re in your 50s or 60s, you may want to get growth potential without taking the risk of losing Roth money you’ll need during retirement. If so, an indexed annuity might be a good choice for you.

It pays interest based on an underlying market index, such as the S&P 500 or the Dow Jones Industrial Average. While the interest earnings are locked in, up to a stated cap (you may not get all of the upside) each year, you’ll never lose money when the index declines.

While indexed annuities are linked to one or more underlying market indexes, their value does not vary from day to day. Instead, they pay a varying amount of interest that is credited and locked in each year on the anniversary date of the contract. Since equity markets can be volatile, indexed annuities are designed to be held long-term, whether yoked to a Roth IRA or not.

A fixed-rate annuity — also called a multi-year guarantee annuity, or MYGA — is a more conservative choice. It works like a bank CD, paying a set interest rate for a set period. Fixed-rate annuities these days pay much more than CDs of the same term. As of April 2021, you can earn up to 2.90% a year on a five-year fixed-rate annuity and up to 2.25% on a three-year contract, according to AnnuityAdvantage’s online rate database. The top rate for a five-year CD is 1.25% and 1.05% for a three-year CD, according to Bankrate. 

Fixed-rate annuities can play a key role in asset allocation. Let’s say you decide to split your Roth assets up 50-50 between equities and fixed income. A fixed-rate annuity can give you a much higher rate of interest than you’d get today with safe fixed-income alternatives, such as CDs and Treasury bonds.

For current annuity rates, see this online annuity database. Interest is paid and compounded annually.

How to get tax-free lifetime income during retirement

Other than a traditional employer pension or Social Security, an income annuity is about the only vehicle that can guarantee an income for as long as you live. And by combining an income annuity with a Roth, that income is tax-free.

If you need income from your Roth very soon, consider an immediate income annuity. You can open a Roth annuity with a single payment (such as a tax-free rollover from an existing Roth IRA) to an insurance company. The insurer in turn guarantees you a stream of income. You can choose how long the payments will last — for instance, 15 years. Most people, however, choose lifetime payments as “longevity insurance.”

You can receive your first monthly income payment a month after your annuity contract is issued.

If you’re married, consider the joint-income option. With it, your spouse will receive regular monthly income payments for the remainder of his or her life too. Payments to a surviving spouse are always tax-free.

If you don’t need income right now, consider a deferred income annuity. Here, your income stream will begin at a future date you choose. By deferring payments, you let the insurer credit more interest over the years on your behalf, and you’ll ultimately get more monthly income. For instance, by delaying lifetime annuity payments from age 65 to 75, you’ll get about 85% to 90% more each month. On the other hand, you and/or your spouse won’t receive the deferred payments as long.

Another option is an indexed annuity with an income rider. The rider guarantees a certain income regardless of the performance of the annuity. It provides income like a deferred income annuity, plus the potential upside of an indexed annuity. It’s sometimes called a “hybrid” annuity.

The downside is cost. The rider typically costs about 1% of the annuity value annually. The insurer deducts this amount from your policy.

The advantage is retaining your money. Unlike an income annuity, which typically has no cash surrender value, an indexed annuity with an income rider lets you keep your money while guaranteeing lifetime income, starting on a date you choose.  You thus have flexibility. If you need the money, it will be there for you to withdraw or annuitize. (Wait until the surrender period is over to avoid any penalties.)  If you don’t need the money, you can pass on any remaining value to your heirs.

Is the extra cost worth it?  It all depends on your situation and goals and your desire to leave money to your heirs.

Whether you’re saving for future retirement or are currently retired or soon will be, annuities offer a range of often-overlooked strategies for the Roth IRA and amplify its advantage of tax-free retirement income.

A free quote comparison service with interest rates from dozens of insurers is available at or by calling (800) 239-0356.

CEO / Founder, AnnuityAdvantage

Retirement-income expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. It provides a free quote comparison service. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities.


Is a 2% 30-Year Fixed Mortgage a Real Possibility?

Week after week, mortgage rates continue to shatter records, and dip to levels no one thought was possible.

It seems as if every month we have to revisit the conversation because what seemed like a bottom wasn’t.

In fact, not too long ago a 30-year fixed mortgage in the 3% range seemed absurd. Now it’s the norm, and everyone seems to want better.

This week, the hugely popular 30-year fixed averaged 3.53%, down from 3.56% last week, per Freddie Mac data. That’s a new all-time low.

And the 30-year fixed has been below 4% in every week but one so far in 2012. So to say it’s been a good year for mortgage rates would be a massive understatement.

By the way, the 15-year fixed also discovered new record territory at 2.83%, down from 2.86% last week.

[30-year fixed vs. 15-year fixed]

So this all begs the question, “Can the 30-year fixed fall below 3%?”

Is It Possible?

If you talk to most bankers, mortgage brokers, or anyone else who tracks the mortgage market, they’ll probably tell you to lock your mortgage rate and forget about it.

At the very least you’ll sleep soundly at night, right? After all, mortgage rates are already at record lows, so why get greedy?

But these same people would have made the same recommendation a year ago when mortgage rates were a percentage point higher.

Heck, I was one of the many that figured rates were bottoming, or very close to a bottom.

I’ve argued many times that the 30-year fixed probably wouldn’t go much lower than 3.5%, but I’ll probably be eating my hat now (if I owned one).

I’ll admit I was wrong, but now I’m focused on how low rates can actually go.

In case you didn’t know, mortgage rates follow the 10-year Treasury bond yield, which is currently around 1.50%.

And because the 30-year fixed is pricing around 3.50%, the spread is about 200 basis points.

[What mortgage rate can I expect?]

If the Yield Keeps Falling…

If the yield were to fall to around 1%, then the 30-year fixed could dip below 3%, and homeowners would finally be able to get their hands on a 2% 30-year fixed mortgage.

I don’t mean 2% literally, but something in the 2% range. So something around 2.75% or 2.875%, which would be nothing short of spectacular.

And if you think it’s impossible, note that a number of Wall Street bears see that yield falling to around 1% by the end of the year, thanks to the looming so-called “fiscal cliff.”

The fiscal cliff refers to the end of some major Bush-era tax breaks and spending cuts, which some argue could lead us in to recession again.

But it’s still very questionable – most believe things will be sorted out at the eleventh hour, with benefits possibly extended, as to not make a very fragile situation any more vulnerable.

However, with all that uncertainty, demand for “safe” bonds could push that yield lower and lower, meaning you may have to refinance again in the near future if you want a lower mortgage rate than your friends.

It’s not to say that you should cancel your refinance application today and wait for better, because as mentioned, we are in unprecedented times and you’ll certainly have a great rate either way.

But don’t be surprised if mortgage rates continue to trickle even lower, as insane as that may sound.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


What Is The Current Capital Gains Tax Rate?

Capital-gains taxes are taxes you pay on profits from selling investments, like stocks, bonds, properties, cars, or businesses. The tax isn’t applied for owning these assets—it only hits when you profit from selling them.

It’s important for beginner investors to understand several factors can affect their capital-gains tax rate: how long they hold onto an investment, which asset they’re selling, how much their annual income is, as well as their marital status.

Here’s a guide on how to calculate stock profits, and below are some basic facts to know about capital gains taxes.

Capital Gains Tax Rates Today

Whether you hold onto an investment for at least a year can make a big difference in how much in taxes you pay.

When you profit from an asset after owning it for a year or less, it’s considered a short-term capital gain. If you profit from it after owning it for at least a year, it’s a long-term capital gain.

Recommended: Short-Term vs. Long-Term Investments

Short-Term Capital Gains Tax Rates

The short-term capital gains tax is taxed as regular income or at the “marginal rate,” so the rates are based on what tax bracket you’re in.

The Internal Revenue Service (IRS) changes these numbers every year in order to adjust for inflation, so investors can learn them by searching on the Internet or talking to their accountant.

Here’s a table that breaks down the short-term capital gains tax rates for the 2021-2022 tax year , or for tax returns that are filed in 2022.

Marginal Rate Income — Single Married, filing jointly
0% Up to $9,950 Up to $19,900
12% $9,951 to $40,525 $19,901 to $81,050
22% $40,526 to $86,375 $81,051 to $172,750
24% $86,376 to $164,925 $172,751 to $329,850
32% $164,926 to $209,425 $329,851 to $418,850
35% $209,426 to $523,600 $418,851 to $628,300
37% Over $523,600 Over $628,300

Long-Term Capital Gains Tax Rate By Income

Meanwhile, the long-term capital gains taxes for an individual are simpler and lower. These rates fall into three brackets: 0%, 15%, and 20%.

Here’s a table that breaks down the long-term capital-gains tax rates for the 2021-2022 tax year by income and status:

Capital Gains Tax Rate Income — Single Married, Filing Separately Head of Household Married, Filing Jointly
0% Up to $40,400 Up to $40,400 Up to $54,100 Up to $80,800
15% $40,401 to $445,850 $40,401 to $250,800 $54,101 to $473,750 $80,801 to $501,600
20% Over $445,850 Over $250,800 Over $473,750 Over $501,600

An additional 3.8% may be applied to individuals earning at least $200,000 or married couples making at least $250,000. This tax came into effect in 2013 in order to fund the U.S. health-insurance program known commonly as Obamacare. A higher 28% is also applied to transactions involving art, antiques, stamps, wine and precious metals.

Tips on Lowering Capital-Gains Taxes

Obviously, hanging onto an investment for over a year can significantly lower your capital-gains taxes.

Capital-gains taxes also don’t apply to so-called “tax-advantaged accounts” like 401(k) plans, IRAs, or 529 college savings accounts. So selling investments within these accounts won’t generate capital-gains taxes. Instead, 401(k)s and IRAs are taxed when you take distributions, while qualified distributions for Roth IRAs and 529s are tax-free.

Recommended: Benefits of Using a 529 College Savings Plan

Single homeowners also get a break on the first $250,000 they make from the sale of their primary residence, which they have to live in for at least two of the past five years. The limit is twice that for a married couple.

It might also be helpful for newbie investors to know that up to $3,000 in losses from an investment can be used to deduct taxes on your income.

How U.S. Capital Gains Taxes Compare

Generally, capital-gains tax rates affect the richest taxpayers, who make a bigger chunk of their income from profitable investments.

Here’s a closer look at how capital-gains taxes compare with other taxes, as well as investment taxes in other countries.

Comparison to Other Taxes

The maximum long-term capital gains taxes rate of 23.8% is lower than the highest marginal rate of 37%.

Proponents of the lower long-term capital-gains tax rates say the discrepancy exists in order to encourage investments as well as risk-taking. It may also prompt investors to sell their profitable investments more, rather than hanging on to them.

Comparison to Capital Gains Taxes In Other Countries

When compared with capital-gains taxes versus other countries, like the 37 in the Organization for Economic Cooperation and Development (OECD), Bloomberg News reported in 2021 that the maximum rate in the U.S. of 23.8% is roughly in the middle.

By comparison, in France, the maximum rate is at 30%. Meanwhile, Switzerland has no specific capital gains tax but taxes sales at ordinary income rates.

Comparison to Capital Gains Taxes Historically

Since short-term capital gains tax rates are the same as for wages and salaries, they adjust when ordinary income tax rates change. For instance, in 2018, tax rates went down due to the Trump Administration’s tax cuts. Therefore, so did short-term capital gains rates.

As for long-term capital gains tax, Americans today are paying rates that are relatively low historically. Today’s maximum long-term capital gains tax rate of 23.8% started in 2013, when the Obamacare 3.8% tax was added.

For comparison, the high point for long-term capital gains tax was in the 1970s, when the maximum rate was at 35%.

Going back in time, back in the 1920s, the maximum rate was around 12%. From the early 1940s to the late 1960s, the rate was around 25%. Maximum rates were also pretty high in the late 1980s and 1990s at around 28%. They then dropped between 2004 and 2012 to 15%.

What’s Tax Loss Harvesting?

Tax loss harvesting is that strategy of purposely selling some investments at a loss in order to offset the taxable profits from another investment. It’s a way to delay paying taxes, not to eliminate paying them at all.

Using short-term losses to offset short-term gains is the best way to take advantage of tax loss harvesting. This is since short-term gains are taxed at higher rates, as discussed above. IRS rules also dictate that short-term or long-term losses must be used to offset gains of the same type, unless the losses exceed the gains from the same type.

Investors can also apply investment losses of up to $3,000 to offset income. And because tax losses don’t expire, if only a portion of losses was used to offset income in one year, the investor can “save” those losses to offset taxes in another year.

Recommended: Is Automated Tax Loss Harvesting a Good Idea?

The Takeaway

Capital-gains taxes are the levies you pay from making money on investments. The IRS updates the tax rates every year in order to adjust for inflation.

It’s important for investors to know that capital-gains tax rates can differ significantly based on whether they’ve held an investment for at least a year. An investor’s income level also determines how much they pay in capital-gains taxes.

An accountant or financial advisor can suggest ways to lower your capital gains taxes. When you open a SoFi Invest account, you’ll gain access to a team of financial advisors who can help you set financial goals and determine your risk tolerance. With as little as $1, investors can also sign-up for Automated Investing, a robo-advisor service that automatically builds and rebalances portfolios for Members.

Learn more about SoFi Invest.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Not Managing Your Own Money? At Least Know This.

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You may not be a numbers person and despise thinking about money. I get it. (Although, I suspect you may be underestimating yourself.)

Because of this, if you’re in a relationship, you may be inclined to let your partner take the financial reins and oversee your joint accounts. Often times households appoint a spouse as the “CFO,” or chief financial officer, with the good intention of streamlining all the financial bookkeeping and bill payment under one person’s watchful eye. That system has its merits. “While it would be nice to think that every financial decision in a household were made on a 50/50 basis – real life so often gets in the way,” says Manisha Thakor, Director of Wealth Strategies for Women at The BAM Alliance. “In our modern, busy world ‘divide & conquer’ is often the only logistical way to make sure all financial tasks get done.”

But if you’re not the family CFO and/or not interested in personal finance, it’s never an excuse to turn a blind eye to your money. You risk making ill-informed decisions, taking your finances for granted and being financially vulnerable in the event your partner can no longer oversee the bills for any reason.

To avoid such perils, here are critical areas of your financial life that each person in a partnership should understand no matter what.

Income & Expenses

Do you know how much your spouse or partner earns? Believe it or not, this figure is a blind spot in many relationships. A recent study found that 43% of couples failed to accurately report how much their partner earns.

Another survey found that one in three newlyweds discovered their spouse’s spending habits are different than what they thought.

But if you don’t know how much each of you brings home (and spends) every month, how will you be able to really understand what’s affordable, how long it will take you to climb out of debt or save up for a goal together?

“There’s no need to go into the spending nitty-gritty, so long as the difference between income & expenses is positive, savings goals are being met, and no one is upset at how money is being spent,” says Thakor.

Another reason why it’s key to know how much your partner makes is so that you can better assess your tax filings. Taxes may not be something you like to tackle, but if you do sign a joint return, you should know your combined household income. That’s a line item the IRS zooms in on very closely. Misreporting or under-reporting income is a big no-no. And if you’re both signing those tax returns, the IRS will hold the both of you accountable in the event of an audit.

Your Home Ownership Status

If you own a home with your partner and the mortgage is in both of your names that only means that you’re both financially responsible for the loan. But unless your name is also on the property deed, you don’t technically own the home. This is critical to know because in case you separate or divorce, you may not be entitled to the house or profits from the sale.

Account Access

Your partner may be primarily in charge of paying bills and managing the money, but what if you had to (or just want to) step in and take a look or manage the accounts yourself? Do you know where and how to pay the mortgage if you had to? Can you access your retirement savings and investments online?

“For shared assets you want to know what accounts you have and where they’re kept,” says Thakor. In addition to bank accounts, be sure to keep an updated list of your shared insurance policies and know where and how to access your will.

Your Investment Strategy

How informed are you about the way you’re investing together? You may not be that interested in stock charts and tables, but at least know your allocation and the amount of risk you’re taking together. “Knowing your mix between stocks, bonds and cash, and knowing how much in aggregate fees you are paying (at both a product and an advisor level) are three key drivers of your long term investment success,” says Thakor. Set up a time to review your investments with your partner regularly and make a point to show up to meetings with a financial advisor. And remember, no question is a dumb question!

Credit Scores

If you’re ever planning to apply for a loan or credit card together, it’s best to know each others credit scores so that you can better manage your expectations. If you only assume your partner has a strong 800 credit score (like you), but then get rejected for a joint loan because the score was actually in the 500s, you might save yourself the shock and resentment that will likely soon follow. The earlier you know, the sooner, too, you can work together to help repair his or her credit. Keep track of your credit score on a monthly basis using Mint’s credit score tool.

Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at (please note “Mint Blog” in the subject line).

Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.

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