Can I roll my IRA 401 (k) into an annuity?
A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts.
An annuity (available in several varieties) is really a contract between you and an insurance company. You give the insurance company your money and in return they promise to provide you with periodic payments for a certain amount of time, or, until a specified event occurs, i.e., the death of the person receiving the payments.
Since your 401 (k) and annuities are both considered retirement plans, the IRS allows you to roll over your individual retirement account into a tax deferred, qualified annuity. Done correctly, the IRS does not charge any taxes or penalties on the transferred funds.
There are two types of annuities: qualified and non-qualified. Qualified annuities are funded with before-tax dollars, like the money in your 401 (k). Non-qualified annuities are funded with after-tax dollars. When handling your rollover, be sure to move your IRA into a qualified annuity or the IRS will consider your transfer a taxable withdrawal.
There is also a time factor to consider. If your IRA company is going to be depositing your savings directly into your bank account, you must transfer that money to the annuity within 60 days. Failure to meet this timeline will result in the IRS considering the event a withdrawal, and the entire amount will be taxed.
A big reason many people opt for rolling over their 401 (k) into an annuity is that it provides insurance on their retirement investment. Certain annuities guarantee a fixed rate of return on your money regardless of market conditions, alleviating the concern of the misfortune of retiring in a down market. An annuity turns your savings into a fixed series of payments so your future income is more predictable.
Investing in a life annuity will give you monthly payments for the rest of your life, insuring that you will never outlive your retirement income. There are also option death benefits providing protection for beneficiaries and avoiding probate issues.
There are some factors to consider if you are contemplating rolling your IRA 401(k) into an annuity.
Certain types of annuities are irrevocable. By rolling over your 401 (k) savings you are giving up access to the principal in return for guaranteed income.
Remember, annuities are long term investments. There may be high surrender fees and penalties if you need to withdraw your money too early. It is important that you fully understand any surrender fees when considering a roll-over into an annuity.
As with any investing decision, when determining whether a 401(k) or annuity is right for you, look at your entire financial situation, figuring out your goals and risk tolerance, either on your own or with the help of a financial professional and always keep your long-term goals in mind.
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