My Financial Adviser Wants To Roll My 401 Into An Annuity Do You Think This Makes Sense
I’m not saying that someone can’t come up with a scenario where such a move might make sense. I suppose, for example, that putting your entire 401 balance into an annuity could be reasonable if your 401 balance represented only a relatively small portion of your retirement savings and the annuity achieves something that no other investment or strategy can.
But barring some pretty unusual circumstances, I would have a hard time coming up with a compelling reason to invest all or even most of your 401 in an annuity. So I can’t help but wonder who benefits more if you make this move — you or the adviser?
What makes me, shall we say, suspicious about this recommendation is that annuities are a classic “sold not bought” investment, which is to say that in many cases they are foisted on investors who may not fully understand what they’re getting into or realize what alternatives may be available. One reason for this is that certain annuitieshere, I’m thinking mostly of fixed index annuities and variable annuities with income riders — can often pay very generous commissions that, consciously or not, may make some advisers more likely to suggest them.
Q How Do I Locate And Purchase An Ira Annuity
A. It’s easy. Review the annuity rates at our web site. Select the insurance company you want to do business with and we will send you that company’s annuity application and a direct transfer authorization form to start the rollover process. You complete the forms and the transfer is handled by the insurance company. We provide you with this service free of charge. Millions of such rollovers take place each year between banks, brokerage firms, mutual funds, employers and insurance companies.
How To Rollover A Variable Annuity Into An Ira
A variable annuity is a tax-deferred retirement account, the value of which varies based on the performance of the underlying portfolio of mutual fund-like investments. A variable annuity is a type of annuitya financial product that allows an individual to invest money in either a lump-sum payment or scheduled, periodic paymentsand then collect a stream of payments at a later time, typically during retirement.
You can roll over qualified variable annuitiesthose established with pre-tax dollarsinto a traditional IRA. Qualified annuities are often set up by employers on behalf of their employees as part of a retirement plan.
Non-qualified variable annuitiesthose established with after-tax dollarsare not eligible for a rollover to a traditional IRA, but you can move them into other types of non-qualified accounts.
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Q My Money Is In A 401k Account With My Employer How Do I Roll It Over To The Insurance Company
A. You’ll need to contact your HR department about the procedures they have for releasing your money. Many employers require their own forms to be completed before they release your funds. These companies will not process a transfer request which is initiated only via the insurer’s paperwork only. Some employers will only send the rollover check to the employee’s home address. It would be expedient if your employer agreed to issue its check payable to the insurance company for your benefit and then send the check directly to the insurer by overnight mail. This would be the fastest way to make the transfer. Next best would be if your employer sent the check to you by overnight mail and you sent it the insurer.
We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldnt be happier. What more can we say?
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Although the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider before rolling your 401 into an annuity. In addition to the sometimes hefty fees incurred by annuitants, you risk losing part of your investment if you die prematurely, as you may not be able to pass the remainder of the annuity on to your beneficiaries.
Many insurance companies tout the tax benefits of annuities. However, a traditional 401 is already tax-sheltered, and a delayed rollover could cost you in taxes.
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Can I Keep The Same Funds I Have In My Retirement Plan
This depends on your plan. First, you’ll want to reach out to your provider to determine if moving the assets over “in-kind” or “as is” could be an option for you.
If it is an option, then you’ll want to contact us at 877-662-7447 . One of our rollover specialists can help determine if we can hold your current investments here at Vanguard.
If it isn’t an option, don’t worrywe can still help you choose new investments once your assets have arrived here at Vanguard.
How Long Do I Have To Roll Over My 401
You can roll over a 401 at any point after you switch jobs or retire. Bear in mind, though, that the IRS gives you just 60 days after you receive a retirement plan distribution to roll it over to an IRA or another plan. And youre only allowed one rollover per 12-month period from the same IRA.
If you miss the 60-day deadline, the taxable portion of your 401 distribution will be taxed. And if you are under the age of 59½, there will be an additional 10 percent tax penalty.
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How To Roll Your Ira 401k Or 403b Into An Annuity By Jennifer Lang Financial Services
Tax-protected retirement savings accounts, such as IRAs, 401s or 403 plans, can be directly rolled over into an annuity tax-free as long as IRS requirements are followed.
Houston, Texas –News Direct– Jennifer Lang Financial Services, LLC
Retirees face a slew of risks in their golden years. The most common among them are outliving their savings, high medical bills not covered by Medicare and unexpected costs. A significant stock market loss or expense can be catastrophic with less time to increase resources. An annuity may be the perfect solution to bridge the retirement income gap. Annuities are customizable and can be structured to meet unique financial needs. Learn more: JenniferLangFinancialServices.com
What Can I Roll My Ira Into Without Penalty
With a SIMPLE-IRA, you can transfer the assets to a standard IRA or another employer-sponsored retirement plan without paying taxes or penalties. Roth IRAs are also available, however the rollover amount must be taxed. If you want to roll over a SIMPLE-IRA to another SIMPLE-IRA, you must wait two years after you started participating before you may do so. It is possible to convert your SIMPLE-IRA into a standard IRA, a Roth IRA, or any other employer-sponsored retirement plan. The only way to transfer your Roth IRA assets is to do so into another Roth IRA. All tax-deferred retirement plans, including Roth 401, 457, and 403, are not allowed to be rolled into a Roth IRA .
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How Can I Get Out Of An Annuity
It is possible to exit annuities in a number of different ways. There are a few options if its an IRA. A 1035 exchange or surrender is an option if it is not an IRA. If its an annuity, youll need to locate a buyer.
In the case of annuities that have yet to begin paying out a monthly income, the first two options are appropriate. If the annuity is paying out income, the third rule applies. This is how each of these choices works.
Can An Annuity Be Rolled Over Into A 401k
Only if you previously owned your annuity in an individual retirement arrangement or another 401 plan may you roll it into your 401. Because contributions to 401 plans are tax-deductible, annuity contributions made outside of a retirement account are not tax-deductible, this is why. A tax-deductible and a non-deductible investment account cannot be mixed together.
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Topic No 413 Rollovers From Retirement Plans
A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan. This rollover transaction isn’t taxable, unless the rollover is to a Roth IRA or a designated Roth account from another type of plan or account, but it is reportable on your federal tax return. You must include the taxable amount of a distribution that you don’t roll over in income in the year of the distribution.
What Type Of Annuity Should I Rollover My 401 Or Ira Into
Many of the articles on the web are discussing what is called a variable annuity.
You can read about annuity types in more detail in Should I Buy An Annuity For Retirement?
We do not recommend looking at variable annuities at all due to things like extra fees and the risk of losing your money.
We recommend fixed annuities, which are guaranteed contracts, meaning there arenât any fees and thereâs no risk of losing your money. Current fixed annuities will give you between 3-4% interest on your money, but this is subject to change.
The agents here at Medicare Allies would only consider recommending a fixed annuity â never a variable annuity!
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Rollover Into An Annuity
Another option is to roll your 401 into an annuity, which can still be held within the tax-friendly embrace of an IRA, helping you avoid taxes until theyre necessary. The advantages of an annuity are that it can provide stable income with a guaranteed return. When participants tap the annuity, they can receive a regular pension-like income. Many savers like this security, and they dont need to worry about investing their money, a process that some dont want to handle.
The downsides for an annuity include the relatively high sales commissions that can sometimes be hidden in the sales contract. The types of annuity contracts can be incredibly complex, with all types of restrictions and caveats, depending on what the annuity company offers. Some annuities can be much more complex than others, depending on the features you need.
Another downside is that once you buy the annuity, the money is typically locked in for some period, so it may not be readily accessible if you have an emergency and need cash. If youre still within the lock-up period, youll usually have to pay a hefty surrender fee to access your money.
The Transfer Process & Paperwork Involved
After youve review your annuity rollover options, and chosen a product, its time to execute. This is often the easiest part. The paperwork is simple. You would complete an annuity application and a transfer form if its an IRA/403b annuity. And an exchange form for non-qualified assets. You should now know what non-qualified means from our explanation above.
If you are changing annuities you will have to complete some other forms including a notice to the commissioner form. Completing this form notifies your current annuity provider with news that you plan to transfer your funds. This gives them an opportunity to conserve the business.
Why this form exists involves many issues. But thats not material here. Just know that in a few cases, your existing annuity company may contact you to try to keep you from transferring.
Overall, annuity rollover options related paperwork should not be too difficult.
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Q What Tax Penalty Applies If I Am Not Yet 59 Years Old
A. In general terms, if you would like to take withdrawals from an IRA or 401k and you are not yet 59½ you can avoid the 10% federal penalty tax in one of two ways. You could transfer your IRA or 401k to an insurance company immediate annuity which offers a “life contingent” payment option. In simple terms, as long as your annuity is set up to pay you over your lifetime no tax penalty will apply. which is SHORTER than the number of years in your life expectancy a 10% tax penalty IS LIKELY TO apply.) An alternative method is to withdraw amounts which are calculated not to exceed the level determined using the IRS 72t or 72q rules.
Disclaimer: You are advised to consult with your own legal and tax professionals before making any decisions related to the purchase of this annuity.
How Are 401s And Annuities Similar
401s and annuities share key characteristics that make them attractive retirement savings options.
- Long-term savings. Both 401s and deferred annuities allow you to make contributions over time. This can be helpful for those who want to save for retirement but dont have large sums to invest already.
- Tax-deferred growth. The gains you enjoy in both traditional 401s and annuities are tax-deferred, and youll only pay taxes when you begin taking distributions. And remember: The gains you experience in a Roth 401 will never be taxed as long as you wait until youre at least 59 ½.
- Early withdrawal penalties. Withdrawals taken before you turn 59 ½ generally incur an IRS penalty . Both annuities and 401s offer exceptions when you can make a penalty-free early withdrawal, like if you take substantially equal periodic payment .
- Assets pass outside of probate. When you designate a beneficiary on a 401 or annuity, those assets dont need to go through probate and can be passed directly to a named beneficiary.
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Rollover To A Life Insurance Policy
Technically, you cant roll over your 401 account into an insurance policy however, if you have a life insurance needs, you can withdraw funds from the account and redirect them to pay for a life insurance policy. You can avoid early withdrawal penalties under IRS Rule 72t,2 which allows you to take equal payments from your accounts. However, you must agree to take consistent withdrawals from your account each year for life.
How Much Money Should You Roll Over
Ideally, youll want to roll over enough of your retirement savings to meet your specific needs and financial goals.
You want it to be enough to generate a lifetime income that continues to cover your daily expenses. Youll want to factor in inflation and how much of your expenses are covered by other retirement income sources such as Social Security or pension payments.
Talking with a licensed financial professional can help you determine what you will need to produce a steady retirement income. They can use that to help you decide how much you should roll over into a qualified annuity.
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When You Don’t Roll Over
Cashing out your account is a simple but costly option. You can ask your plan administrator for a checkbut your employer will withhold 20 percent of your account balance to prepay the tax youll owe. Plus, the IRS will consider your payout an early distribution, meaning you could owe the 10 percent early withdrawal penalty on top of combined federal, state and local taxes. That could total more than 50 percent of your account value.
Think TwiceThe repercussions of taking money out now could be enormous: If you took $10,000 out of your 401 instead of rolling it over into an account earning 8 percent tax-deferred earnings, your retirement fund could end up more than $100,000 short after 30 years.
If your former employers plan has provided strong returns with reasonable fees, you might consider leaving your account behind. You dont give up the right to move your account to your new 401 or an IRA at any time. While your money remains in your former employers 401 plan, you wont be able to make additional contributions to the account, and you may not be able to take a loan from the plan. In addition, some employers might charge higher fees if youre not an active employee.
Further, you might not qualify to stay in your old 401 account: Your employer has the option of cashing out your account if the balance is less than $1,000 though it must provide for the automatic rolling over of your assets out of the plan and into an IRA if your plan balance is more than$1,000.
What Is A 401 Plan
A 401 plan is a company-sponsored retirement savings plan offered by employers to their employees. It has tax advantages to employees saving up for their old age. It is named after a section of the U.S. Internal Revenue Code called 401.
The employee who opts for a 401 agrees to have a portion of each paycheck paid straight into an investment account. The employer may contribute part or all of the money. Employees generally get to pick from a variety of mutual funds as part of their contribution option.
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