Can you move your fixed annuity into an IRA?
In many cases you can move a fixed annuity into a Traditional IRA and not have to pay any distribution taxes. However, your ability to do this depends on the tax qualification of your current annuity.
In this article, we’ll describe when you can make this type of transfer and what to watch out for so you don’t get hit with any unexpected charges.
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How can you move funds from a tax-deferred annuity to a Traditional IRA?
If you have an accumulation annuity like a multi-year guarantee annuity or fixed index annuity, you can often move the money inside of it to an IRA without incurring any distribution taxes or early withdrawal penalties.
It’s important to note that this is only possible if your current annuity has the tax qualification of an IRA.
If your annuity is qualified (e.g. it was funded by an IRA), you simply perform a trustee-to-trustee transfer from the insurer to the custodian of your IRA account. This is the easiest, most straightforward way to ensure this transfer happens according to IRS rules and remains tax-free.
Watch out for penalties and charges
While you can move your money from an annuity to an IRA without incurring any distribution taxes or early withdrawal penalties from the IRS, you still may be subject to surrender charges and market value adjustments from the insurer.
If your annuity is still within the surrender charge period, moving your money out of the annuity, even if it is into a qualified account like an IRA, will still trigger surrender charges and possibly a market value adjustment.
Can you move a non-qualified annuity without triggering taxes?
Yes, you can certainly do this, however, you have to move your annuity into another deferred annuity via a 1035 exchange.
A 1035 exchange allows you to move the money in one annuity to another without triggering taxes. We have more detailed information about 1035 exchanges here, but it’s worth noting that 1035 exchanges are highly regulated, and we strongly suggest you perform this type of transaction with a trusted, reputable annuity expert.
What you are not allowed to do, however, is to use a 1035 exchange to move your money out of a deferred annuity into a non-annuity product. 1035 exchanges are only for annuity-to-annuity transfers.
If moving your annuity into an IRA would trigger taxes or penalties, it's usually better to explore a 1035 exchange or contact an annuity specialist before taking a distribution
A strategy for minimizing taxes from deferred annuities
While you can’t move a non-qualified annuity into a regular savings account without paying taxes on your earnings, there is a strategy to spread out your tax burden.
You can perform a 1035 exchange into an immediate annuity. An immediate annuity distributes your tax burden over the life of annuity, helping to spread out your tax burden instead of you realizing it all upfront. For more details, see this article about distributing your tax burden.
Need help with annuities?
Don’t worry if you find all of this confusing; it is! We can help you though. Just call our U.S.-based annuity experts at (866) 866-1999. We can help you understand what your options are with your current annuity as well as discuss annuity strategies that meet your retirement goals. We promise to give you honest answers to your questions without any sales pressure. We’re here to help.
IMPORTANT NOTICE
We are not tax advisors. This article is for informational purposes only and does not constitute tax advice. Please consult a certified tax professional regarding annuities and taxation.
