Annuities are insurance policies. These policies guarantee you an income during retirement. But some annuities defer this income. The former are called immediate annuities and the latter are referred to as deferred annuities or savings annuities. Immediate annuities cannot be rolled over. Only deferred annuities may be rolled into a new annuity .
You may roll over your deferred annuity into a new deferred annuity or an immediate annuity. Contact your insurer and request a 1035 exchange. This exchange allows you to move the money directly from one annuity contract to another. Some states place restrictions on your rollover. These restrictions require you to compare your new annuity purchase with the existing annuity. If you are comfortable with the new annuity purchase, then the insurer transfers the annuity. If not, you keep your existing annuity.
The annuity transfer is a direct transfer. There is no tax due on the amount of money you move from one annuity to another. Instead, the transfer is handled by the insurance company, similar to the tax-free transfer made when one IRA is exchanged for another.
You benefit from a rollover annuity when the new annuity offers you something that the old annuity did not and the benefit is an actual benefit. This could be a higher investment return or lower fees or a stronger guarantee (i.e. switching from a variable annuity to a fixed annuity).
Before rolling over your annuity, you should carefully consider the move. New annuities come with new surrender charges. A surrender charge is a penalty for withdrawing money or cashing in the policy before a specific date. These surrender charges often are effective for many years, encouraging you to stay in the annuity for the long term. If you need money short term or you are retired drawing an income, the new surrender charge could become a serious liability.
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
- IRS: Publication 575
IRA Vs. Annuity
As your 401k balance plummets during a bear market, the idea of a guaranteed income stream--exactly the promise in that annuity brochure...
Can You Rollover Money From an Annuity to an IRA?
Life insurance companies design and sell insurance products called annuities. An annuity is a financial product that guarantees a monthly payment to...
How to Convert an Annuity to an IRA
Annuities are a common retirement planning investment vehicle. If a person has an annuity through his employer and then leaves the company,...
How to Transfer an Annuity Into an IRA
An annuity and an IRA are both vehicles that investors can use to save for retirement. Both are given tax-deferred status by...
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...
Annuity Rollover Rules
Tax-exempt organizations can offer their employees tax-sheltered annuities as a retirement plan vehicle. When employment status is terminated for whatever reason, an...