How to Convert an Annual Annuity to a Roth IRA
With the advent of the Roth IRA, many people are converting tax-deferred retirement plans to a Roth account. There are several reasons for this. First, the Roth IRA has no required minimum distribution like a traditional IRA. Also, there is no tax on earnings while in the Roth IRA or on distributions from the Roth IRA as long as the distribution amount doesn't exceed the contribution amount. However, the Roth IRA is funded with after-tax dollars so if funds are coming from a tax-deferred account such as an annuity, taxes must be paid on the money before it goes into the Roth.
Other People Are Reading
Instructions
-
-
1
Open a Roth IRA with a traditional broker or through an online broker. If you wish to have a broker assist with your investments, then a traditional broker is a good choice. If you want to handle the investments of your own retirement money, then choose an online broker.
-
2
Download or print the proper paperwork from the annuity company for cashing out the annuity. Fill it out completely. Most of the paperwork is fairly straightforward.
-
-
3
Deposit the funds into the Roth IRA. Whether the Roth IRA is managed or self-directed, the growth is tax-free. Even when you take a distribution after age 59 1/2, it is tax-free is you only take amounts equal to or less than your contribution amounts.
-
1
Tips & Warnings
As long as the Roth IRA has been established for five years, you can take out money before age 59 1/2, up to $10,000 total lifetime, without the normal 10 percent IRS penalty if the money is used for a house or child's or grandchild's education.
You may pay a fee for cashing out the annuity, as well as taxes. These fees and taxes must be taken into consideration when deciding to convert an annuity to a Roth IRA.
