He Put Half His 401(k) Into an Annuity at 68.
The $2,400 Monthly Check Is Guaranteed
So Is the Tax Bill Nobody Mentioned. Quick Read – Rolling pre-tax 401(k) funds into an annuity makes the full $2,400 monthly payment taxable as ordinary income, with no return-of-principal exclusion. – Adding $28,800 in annuity income can push 85% of Social Security benefits into taxable territory and spike Medicare IRMAA premiums two years later. – Unlike Social Security’s 2.8% COLA, a fixed annuity never adjusts for inflation, meaning the $2,400 payment loses real purchasing power every year. – The pitch is straightforward: a 68-year-old rolls half of his 401(k) into a single premium immediate annuity and locks in $2,400 a month for life. The insurance company sends the check on the same day every month, and it keeps coming whether markets rise or fall.
What the sales illustration usually leaves out is that every dollar of that payment lands on the tax return as ordinary income, and the second-order effects on Medicare premiums and Social Security taxation can be larger than the sticker tax itself. Where the money comes from is what matters here. A 401(k) gets funded with pre-tax contributions, which means the IRS has a claim on every dollar that eventually comes out.