Can I Rollover a Matured Annuity to an IRA?


An annuity can be an IRA but not all annuities are IRAs. That almost sounds like a philosophical riddle. It is important when discussing rolling an annuity into an IRA. You can roll a matured annuity into an IRA only if the annuity was also an IRA. However, there are other ways you can defer the tax you'd pay if you allowed the insurance company to send you the check from the matured annuity.

Annuities vs. IRAs

  • While the growth of annuities is tax-deferred, just like the growth of traditional IRAs, the two are not the same. You can put as much as you want into an annuity but have limits with an IRA, unless the money is already in a qualified plan such as other IRAs or 401(k)s. You can tax deduct traditional IRAs or not pay taxes on the growth of Roth IRAs. Annuities are more like non-deductible IRAs but you can't simply roll one into the other.

Take the Tax and Deposit It

  • You can withdraw the funds from your annuity and deposit them into an IRA if the value is less than $5,000 to $6,000 for those over 65 -- and you qualify. You qualify if you don't have a company retirement plan or fall into specific income brackets if you do. You pay tax on the growth when you take out the funds. If the annuity amount is more than you can put in your IRA, you can still reduce the tax burden that year by putting some of the funds into your IRA.

1035 Exchange

  • The easiest way to continue to defer the tax on a matured annuity is to do a 1035 exchange. When you do this, you simply roll your matured annuity into another annuity. Your annuity funds go directly into the other product and maintain the tax-deferred status. This is the best way to handle a matured annuity if you don't need the money.

Extend the Maturity Date

  • Annuity maturity dates are not like life insurance maturity dates where the policy automatically cashes. Annuities have arbitrary dates projecting when you'll take the money as a payment. However, you can change the date. Many of the older policies don't have as beneficial of provisions as some of the newer ones so keeping it may not be in your best interest. There are two exceptions to this. The first exception occurs if you need the money in the near future. Moving the maturity date is the right action since you don't trigger another surrender period as you would with a new annuity. The second exception has to do with guarantees. If you have a fixed annuity with a high minimum guaranteed interest, in lower interest times it makes sense to hang onto the older policy as long as possible.

IRA Annuity

  • If your annuity is also an IRA, you can roll it into any other IRA if you choose. You use the same method as you use for any type of rollover or transfer. If you do a rollover, which means you receive the funds and have 60 days to deposit it in a new IRA or pay tax, make sure you keep excellent records on the transaction. A custodian to custodian transfer is normally the best.

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