Roll Over my IRA or 401(k) to an Annuity Tax-free
You can easily roll over your IRA or 401k to an annuity without paying taxing taxes. Since 1983, our company has helped thousands of IRA and 401k holders to transfer their pension lump sums into annuities tax-free. We would be glad to answer any questions you have about this process. Please call our customer care department toll-free at 866-866-1999 if your questions are not answered on this page. Below, we've provided some of the more frequently asked questions about IRA-to-annuity & 401k-to-annuity rollovers.
Q. Can I rollover my IRA or 401k into an annuity and avoid paying taxes?
A. YES. An annuity which receives an IRA or 401k transfer is considered a "qualified" plan. When you apply for an insurance company annuity with pre-tax money, the insurer creates an "IRA Annuity" account into which your money is transferred directly. You can directly transfer your pension lump sum or IRA into an annuity without adverse tax consequences. Your employer can roll over your 401k into an annuity without having to withhold any taxes. There is no mandatory withholding requirement if your funds are rolled over directly into an annuity.
Q. Into what types of annuities can I roll over my IRA or 401k?
A. Depending on what you're trying to accomplish with the annuity, you can roll over your IRA or 401k into any of the following 3 types of annuities:
- CD-type deferred annuity — A CD-type annuity is a fixed-rate annuity in which the interest rate guarantee period matches the surrender penalty period. In other words, if you buy a five-year CD-type annuity you're guaranteed to get the stated interest rate for all five years if you hold the contract for five years. Here you can find rates for CD like annuities.
- Equity-Indexed Annuity — This type of annuity offers a stock market-driven investment with potentially attractive returns and a guaranteed minimum return. There are several indexing methods used to determine account values, each with its own variations and benefits. Here you can find rates of Equity Indexed annuities.
- Immediate income annuity — An immediate annuity begins making regular monthly payments to you shortly after you deposit your money with the insurance company. The rates quoted for an immediate annuity are in a different format than the interest rates shown for a deferred annuity. The reason for this is that your immediate annuity rate is influenced by your age, gender, and choice of payment options, all factors which have no bearing on a deferred annuity rate. Here you can find our immediate annuity calculator.
Q. If I roll over my IRA or pension lump sum into an "immediate" pay annuity will it be considered a taxable distribution?
A. NO. Normally a pension distribution is taxable, but federal law permits you to roll over your accounts into an immediate income annuity without paying tax. You pay taxes on the monthly income you receive from the immediate annuity.
Q. How do I locate and purchase an IRA Annuity?
A. It's easy. Review the annuity rates at our web site. Select the insurance company you want to do business with and we will send you that company's annuity application and a direct transfer authorization form to start the rollover process. You complete the forms (with our assistance) and the transfer is handled by the insurance company. We provide you with this service free of charge. Millions of such rollovers take place each year between banks, brokerage firms, mutual funds, employers and insurance companies.
Q. How can I "lock in" the IRA annuity rate before my money is received by the insurance company?
A. Many insurance companies offer "rate hold" protection. Your quoted rate is held for one to three months during the time the money transfer takes place. The rate hold period usually begins the day the insurer receives your completed application and accompanying forms. (Please call 800-872-6684 to confirm the "rate hold" practices of any company you are considering.)
Q. My money is in a 401k account with my employer. How do I roll it over to the insurance company?
A. You'll need to contact your HR department about the procedures they have for releasing your money. Many employers require their own forms to be completed before they release your funds. These companies will not process a transfer request which is initiated only via the insurer's paperwork only. Some employers will only send the rollover check to the employee's home address. It would be expedient if your employer agreed to issue its check payable to the insurance company for your benefit and then send the check directly to the insurer by overnight mail. This would be the fastest way to make the transfer. Next best would be if your employer sent the check to you by overnight mail and you sent it the insurer.
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Q. My employer sent me my pension lump sum distribution. His check was made payable to me not to the insurance company. How do I avoid paying taxes on this distribution?
A. You must roll over the money into a 401k Annuity within 60 days to avoid taxes. If the money is not in an annuity within the allotted 60 days you will owe taxes on the full distribution. Many insurance companies will accept a check made payable to you which you endorse over to the insurance company.
Q. What tax penalty applies if I am not yet 59½ years old?
A. In general terms, if you would like to take withdrawals from an IRA or 401k and you are not yet 59½ you can avoid the 10% federal penalty tax in one of two ways. You could transfer your IRA or 401k to an insurance company immediate annuity which offers a "life contingent" payment option. In simple terms, as long as your annuity is set up to pay you over your lifetime (or jointly, over your and your spouse's lifetimes) no tax penalty will apply. (Be careful not to select an annuity for a specified number of years (a so-called "period certain" or "term certain" annuity) which is SHORTER than the number of years in your life expectancy — a 10% tax penalty IS LIKELY TO apply.) An alternative method is to withdraw amounts which are calculated not to exceed the level determined using the IRS 72t or 72q rules.
Disclaimer: You are advised to consult with your own legal and tax professionals before making any decisions related to the purchase of this annuity.