Why CPAs are Wrong about Buying Annuities in IRAs and 401(k) Plans

Before I get started, if you haven’t seen the following, you might want to sign up for one/both.

21-Page White Paper–FIAs in ERISA Governed Pension Plans


Recorded WEBINAR on FIAs in ERISA Governed Pension Plans


CPAs can be maddening

If you want to see a CPA’s face turn red, simply tell him/her that you like to recommend that clients buy annuities inside an IRA or pension plans.

Why…what criticism would a CPA have?

The typical uninformed/under-educated CPA will typically say one or both of the following:

  1. There is no need to buy a “tax-deferred” annuity inside a “tax-deferred” IRA/qualified plan.
  2. You must be working with a product pushing advisor you should never use again.

The CPA is WRONG! CPAs do what CPAs do and that’s focus on taxes.  In this case, doing so means they are missing the point of using certain annuities in tax-deferred IRAs/401(k) plans.

Using annuities NOT for the tax deferral

What the CPA is missing are the “other benefits” certain annuities provide that have NOTHING to do with their tax deferral.

Reasons to use an annuity inside an IRA/401(k) plan:

  1. No risk of loss—Fixed Indexed Annuities (FIAs) offer no risk of loss due to downturns in the stock market and locking of the gains in up years. Good FIAs today can be expected to return 3-5% a year (again with no risk of loss). For people 50 and older, not losing money in part of their portfolio can be very important.
  2. Guaranteed income for life—FIAs (and some variable annuities) can come with guaranteed income for life riders on them. While income riders are not for everyone, for many they provide peace of mind that can’t be achieved otherwise.
  3. Enhanced income for LTC (long-term care)—some FIAs come with enhanced guaranteed income for life payments if an insured can’t perform 2 of 6 ADLs (activities of daily living). The enhanced guaranteed income for life payment usually lasts for a period of 4-5 years depending on the carrier and the length of need for LTC benefits.

Let me qualify the “wrong” comment from earlier. If someone wanted to buy a typical no bells and whistles variable annuity (one that simply buys mutual funds in a tax-deferred annuity wrapper), the CPA would have a good point (there is no need to buy that type of tax-deferred vehicle inside a tax-deferred IRA or 401(k) plan).

FIAs as bond replacements

If you don’t know the numbers, let me give them to you for a classic 60/40 stock-to-bond portfolio vs. a 60/40 stock-to-FIA portfolio. FIAs as a bond replacement is another reason to buy FIAs in IRAs or pension plans.


Too few advisors look to use FIAs as an asset class. Even fewer use FIAs in IRAs and qualified retirement plans.  FIAs don’t cure cancer, but they can be useful tools when helping clients protect and grow their wealth (even inside tax-deferred tools like IRAs and pension plans).

Roccy DeFrancesco, JD, CAPP, CMP
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society