Can a Home Be an Annuity Investment?
Annuities are insurance products that come in two forms: deferred and immediate. Deferred annuities collect assets and allow them to grow over time under a tax-deferred "umbrella." Immediate annuities take a lump sum of cash, perhaps from an injury settlement, and start regularly paying income for a defined period of time or the rest of the annuitant's life. A home is not part of an annuity structure.
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Purpose of Annuities
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The purpose of an annuity, whether deferred or immediate, is to create an income stream. In deferred annuities, the income stream is scheduled to begin at the annuity start date, usually when the annuitant is from 80 to 100 years of age. Immediate annuities might be bought as part of a structured settlement, lottery winning or private purchase that was made to ensure a steady income stream for a period of time. Deferred annuities serve as supplemental retirement accounts, which allow owners to put an unlimited amount of after-tax dollars into a fixed or variable account. The account grows tax-deferred.
Tax-sheltered Annuities
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Tax-sheltered annuities are a specialized deferred annuity. These are also called 403b plans under the IRS Code. TSA plans are offered to employees of nonprofit entities. These are contribution-based retirement plans to which eligible employees make salary-reducing contributions matched by the employer. As of 2011, employee contributions are limited to $16,500, with an additional $5,500 allowed for employees over age 50. When the employee terminates employment, sha has an option of rolling the asset into a self-directed IRA plan.
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Real Estate IRA
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The idea of having a home as part of an annuity investment plan may stem from the concept of a real estate IRA. If the owner of a tax-sheltered annuity rolls funds into a self-directed real estate IRA, the owner can purchase any number of real estate investments in the property. The caveat is the IRA owner cannot have any personal link to the property -- it must be onlyfor investment purposes. Therefore, the owner cannot live in, vacation at or otherwise use the property. Sweat equity is also prohibited. A spouse, lineal decedent or the spouse of a lineal decedent are also prohibited from using the property. Violations of this rule lead to the loss of IRA status, with taxes and penalties applied.
Assets for Federal Aid
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Those looking at Medicaid or federal disability eligibility must consider all assets, including a home. A home valued below $500,000 is a noncountable asset. Countable assets must be no more than $2,000 for eligibility. In long-term planning, some assets are placed into an immediate annuity to provide income. Once the lump sum is placed into an annuity, the asset becomes the insurance company's asset and the owner only has an income source. If you have assets to consider when applying for federal aid, discuss your situation with your state case worker and an attorney so you don't disqualify yourself.
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References
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