5 Questions to Ask when Rolling Over to an IRA Annuity
When your employment ends, you have the option of moving funds from your company-sponsored retirement account, including a 401k, 457, or 403b plan, directly into an IRA annuity account. This is called an IRA rollover.
Here are 5 questions that you should ask if you are considering an IRA rollover:
1. What is the Difference between a Distribution and a Rollover?
Simply put, if your employer's check is made payable to you, it's considered a distribution (but you have 60 days to roll it over into an IRA annuity). What’s more, if you are not yet 59½, your distribution will be subject to an additional 10% early withdrawal penalty.
If your employer's check is made payable directly to the new IRA custodian, it's called a rollover. Taxes will not be assessed because you never received the cash. The retirement money will remain tax deferred, and you won't pay taxes until you begin receiving income payments from your annuity.
2. How Do I Start an IRA Rollover?
First, decide which annuity you’d like to buy. If you are unsure of how to decide, let us know and we can help you sort through the various types of plans and options. Once you you’ve decided, we'll send you an application and an IRA Rollover (Transfer Authorization) form.
Next, call your former employer and tell them you've decided to roll over your retirement money to an insurance company IRA annuity. At that point, they will either send you paperwork to complete or ask to have the insurance company contact them directly (using the carrier's Transfer Authorization form).
If you have any questions on how to fill out the employer’s paperwork, call us. We can set up a conference call with you and your employer to ensure the paperwork is completed properly so your money goes directly from the employer to the insurance company.
3. What Types of Accounts Can Be Combined?
Can several different retirement accounts be combined into one annuity? It depends on the types of pre-tax accounts you have.
IRA, 401(k), 403(b), Keogh, Pension Plan, SIMPLE IRA, and SEP IRA:
Because of the similarities between these accounts, they can be combined. Simply put, the money was tax deferred when you put it in, so when it is withdrawn it will be considered taxable income.
In fact, you can combine several tax-deferred IRA or 401k accounts into one annuity. They can be rolled over at the same time to fund one IRA annuity account.
If your pension plan offers you the ability to take a lump sum distribution, that lump sum can usually be rolled over right into your IRA annuity, too. Tell your employer to make its check payable to the insurance company, not you.