You Can Rollover Your IRA Into A Qualified Annuity

You can rollover your qualified plan into a qualified annuity. This eliminates any taxation on transferring your qualified plan money into a non-qualified annuity. Here’s the scoop…

You may have invested money in your qualified plan – like your IRA or a 401(k) plan – but are now looking to move it into an annuity. Perhaps you like the assurance that a fixed annuity can give you. You could get a deferred annuity and decide later to annuitize it into monthly payments.

For whatever the reason, you can roll your qualified plan money into a qualified annuity. The qualified annuity has the same ‘qualified’ rules that pertain to your qualified IRA. Those rules say that earnings grow tax-deferred but all withdrawals will be taxed as ordinary income. And that means all of each annuitized payment comes out as taxable income. Lastly, withdrawals before your turn 591/2 will carry an additional 10% penalty tax as an ‘early withdrawal’.

Here’s how you do it:

1. Find the annuity you wish to place your money into.

2. Open the annuity account making sure it lists your name and contact information exactly as it reads on your qualified plan statement. Make sure this new account application states that it’s funded by a rollover from your IRA or other qualified plan.

3. Contact your qualified plan custodian and request a rollover package.

4. Fill out the paperwork, stating where the money will be rolled into – i.e. the new annuity company and account. Annuities can only accept cash and cannot do a mutual fund transfer even if the annuity is a variable annuity offering the same mutual fund options.

5. Request your qualified plan custodian to do a direct deposit rollover into your annuity account so you never touch the money.

If you receive the check from the custodian, he’ll withhold 20% of it for taxes. To avoid any tax obligation, you’d have to deposit that check of 80% of your funds and include extra cash of your own to cover the withheld 20% into your annuity account within 90 days. You’ll get the 20% withheld amount refunded to you when you file your taxes for that year.

*Do you want a nonqualified annuity for your nonqualified savings and investments?

If you have investments not in a qualified plan, you can always use those to invest in an annuity. But you’d have to cash out those investments – paying whatever tax is due on them. Then you’d simply invest that cash in your annuity.

In this case it’d be a nonqualified annuity. Its earnings would be tax-deferred, but only a portion of each of your annuity payments would be taxable income; the other would be a return of basis – i.e. the amount (i.e. the premium) you paid for the annuity.

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