Can I Move My Fixed Annuity Into an IRA?
Question: Can I move my fixed annuity into an IRA?
Yes and no…
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You can do a “1035" exchange between annuities, fixed to variable (although technically questionable, it has never been challenged by the IRS), variable to fixed, and fixed to fixed.
The 1035 exchange refers to the IRS code that allows an annuity holder to move the profits from one annuity to another without being subject to taxes or the 10% early withdrawal penalty at that time. The profits will generally always be taxable (at ordinary income rates, not capital gains) in the future when withdrawn and spent.
Whenever you exit (or 1035) an annuity, you have to be aware of surrender charges. Annuities can have some of the highest, and longest lasting surrender charges in the financial industry. Thus even if you avoid paying taxes in the switch from one annuity to another, you still may pay a surrender charge ranging from 1% to 10%+.
Now, to the heart of your question, can you move an annuity into an IRA?
If the annuity you own is already titled as an IRA (annuities can be owned in IRA’s or outside them), then you can exit the contract within the IRA (minus surrender charges), and buy something else under the IRA “umbrella”.
If the annuity you own is not an IRA, then the only way to get the funds into the IRA (which is probably not advisable), is to take a distribution, and use the money leftover after taxes and penalties to fund an IRA.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
In that case, I generally feel like you would be better to find a low-cost annuity, with good investment options, and move on with life.
I’d also seek out professional tax help if you do anything with your IRA, a mistake could cost you a lot of money!
Source: kenclarkcfp.com - 09/17/2007