Can I Buy An Annuity With My IRA or 401k?
Yes, you can move your IRA or 401k to an annuity tax-free!
Q. Is it possible to roll over my retirement savings, such as my 401k, IRA, or 403(b) accounts into an annuity without paying taxes?
A. You can roll over your IRA, 401(k), 403(b), or lump sum pension payment into an annuity tax-free. Annuities funded with an IRA or 401(k) rollover are "qualified" plans, enabling an insurance company to create an "IRA annuity", into which you can deposit your retirement funds directly.
Additionally, you can have your employer roll over your 401(k) funds into an annuity without withholding any taxes since no mandatory withholding requirements pertain to funds directly transferred into an annuity by an employer.
Q. If I decide to roll over my IRA, 401(k), or lump sum pension payment into an annuity, will I be hit with a distribution tax?
A. NO. The reason you're permitted to roll over these payments into an annuity tax-free is because when you buy an annuity with IRA or 401k money the first thing the insurance company does is create an IRA holding account to receive your transferred funds.
So really buying an annuity with IRA money is the same as moving your money from its current IRA or 401k trustee to another IRA trustee. This kind of transaction is considered a "direct transfer" or a "direct rollover" which is tax-free. You will owe taxes on the monthly income you receive but not on the transfer.
Q. How can I find and purchase an IRA annuity?
A. Locating and purchasing an IRA or 401k annuity is easy if you take advantage of this website's services. Your first step is to use the calculators on our site to create a free instant annuity comparison report with the names and amounts offered by 10+ leading insurance companies. As you review your quotes call us at 800-872-6684 with any questions.
When you’re ready to apply for your annuity, select your preferred insurance company and we’ll send you that company's annuity application with an IRA or 401k transfer authorization form. We'll help you complete all the necessary paperwork.
When the insurance company receives your application it begins the roll-over process by sending your signed transfer authorization to your current IRA/401k custodian. After a few days, they in turn send the premium amount to the insurance company. That completes the transfer and your contract is issued and sent to you. As your agent we walk you through every step of the process. This services is provided free of charge.
Q. Can I "lock in" an IRA annuity rate before the insurance company receives my distribution?
A. It is possible to obtain a "rate hold" from many insurance companies. Usually, the quoted rate is maintained for several months, typically one to three, while the cash transfer takes place. "Rate hold" periods typically begin once the insurance company is in receipt of all required forms, fully completed. (For more information about the "rate hold" practices of specific insurers, please call 800-872-6684.)
Q. My money is currently in a 401(k) account. How do I roll it over to an annuity?
A. This depends on your employer's procedures for issuing such checks. Best to contact your Human Resources ("HR") department and ask them. They may send you a distribution request form to fill out. Once that's processed you'll receive a check made payable to the insurance company for your benefit.
This type of check is usually sent to the employee's home address. No problem there, since the check is made payable to the insurance company it's still considered a direct rollover and tax-free. Just send the check to the insurance company with a note explaining these are your funds to pay for the annuity you previously applied for. Around May 15th of the following year you'll get a Form 5498 from the insurance company confirming the amount on the check was invested in your IRA annuity.
Some employers accept insurance company paperwork and will cut a check that is mailed directly to them. That makes the rollover real easy.
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!
Q. The lump sum pension distribution check I received from my employer is made out to me rather than to the insurance company. Will I still be able to avoid taxation on the distribution?
A. YES. To avoid taxation on your distribution, you will need to roll over the funds into a 401(k) annuity within 60 days. If your distribution is not settled into an annuity within this time period, you will owe taxes on the distribution. To expedite this process, check with your insurance company to see if it is one of the many that will accept a check made out to you but endorsed to it.
Q. I am under age 59 1/2. What tax penalties will apply to me?
A. If you are thinking of making withdrawals from your IRA or 401(k) but you are not yet age 59 1/2 you can avoid the 10% federal penalty tax by transferring your IRA or 401(k) into an immediate annuity with a "life contingent" payment option. If you receive the income periodically over your lifetime you may avoid the 10% penalty tax on the money you receive. Remember, that you must choose an annuity which will pay you over the course of your (or your and your spouse's) lifetime(s) and not an annuity which only makes payments for a limited period or term certain (for a specified number of years).
You can read about this exemption from the penalty tax in Publication 590 on the IRS site. Scroll to Page 56 for the section titled “Early Distributions.” Then go to the sub-section titled “Age 59-1/2 Rule,” and its sub-section called “Exceptions.” One of the exceptions is the “Annuity” rule which says: "You can receive distributions from your traditional IRA that are part of a series of substantially equal payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax, even if you receive such distributions before you are age 59½... There are two other IRS-approved distribution methods that you can use. They are generally referred to as the fixed amortization method and the fixed annuitization method." An immediate life annuity calculates its payments based on the fixed annuitization method, and, thus, satisfies the penalty exception rule.
Q. Do you provide assistance with IRA or 401k rollovers?
A. ABSOLUTELY! Since 1983, Hersh Stern, the principal of ImmediateAnnuities.com, has helped thousands of 401(k) and IRA holders roll over their lump sum pension payments to an annuity, without the need to pay taxes. This is a simple process with the right help, and we are here to answer your questions concerning rollovers and other options with expert advice. Call our customer care department toll-free at 800-872-6684 and we would be glad to help you.
IMPORTANT DISCLAIMER: This information is not intended to provide legal or tax advice. Before making any decisions related to the rollover of a qualified account into an annuity you are strongly advised to consult with proper legal or tax professionals to determine the tax consequences in your financial situation.
We'd love to hear from you!
Please post your comment or question. It's completely safe – we never publish your email address.
Comments (104)
Ron
2015-01-23 12:25:23
If I buy an annuity by moving money out of two IRA's and transferring it to an insurance company are there any tax implications? I am aware that all lifetime income payments will be taxable when we receive them.
Am I also correct in assuming that I can purchase an annuity for my wife's lifetime with money from my IRA?
Hersh Stern (ImmediateAnnuities.com)
2015-01-23 12:42:39
Hi Ron,
You are permitted to blend two IRAs into one immediate annuity in order to create an income stream that covers you alone or both you and your wife. So, yes, the transfer from your IRA to the insurance company is tax-free.
However, you cannot buy an annuity for your wife's lifetime with money from your IRA. If you want her to benefit from your IRA while you're living, it must be a joint life annuity covering both of you.
-Hersh
Ed
2015-02-09 11:34:31
Does the 10% penalty on taking your pension early drop off when the person receiving the pension turns 59 1/2 ?
Hersh Stern (ImmediateAnnuities.com)
2015-02-09 11:57:27
Hi Ed-
In your situation with a 10-year period certain annuity the 10% federal penalty tax will apply on distributions received prior to 59-1/2 but not on distributions received after that age.
You may already know that there are exceptions to the 10% penalty tax. As an example a Series of Equal Periodic Payments based on life expectancy that must continue to the later of age 59-1/2 or 5 years. Of course, a life annuity would also be another exception.
The following paragraph is from IRS Publication 590-B for your reference:
"Is there an additional income tax on early distributions from retirement plans and IRAs?
"An additional 10% tax applies to early distributions (before the participant reaches age 59-1/2) from a retirement plan or IRA under Code §72(t)(1). Section 72(t)(2) lists exceptions to this tax, including distributions received in substantially equal periodic payments."
Take care.
Hersh
Allen
2015-02-19 13:31:48
Can my wife and I pool our IRAs and buy one annuity?
Hersh Stern (ImmediateAnnuities.com)
2015-02-19 13:46:00
Sorry, Allen, but Uncle Sam says no can do. An individual IRA can have only one owner. If you pooled your monies your "combination" IRA would belong to both of you and that is not permitted.
However, all is not lost because you can buy a joint life annuity covering both of you using the proceeds from your IRA and remain the sole owner of that annuity. Similarly, your wife can buy an annuity with her IRA money and also cover both of you. In that way you accomplish your original goal. In fact, the monthly income fro these two annuities would be practically the same amount as you might have received from purchasing two separate joint life annuities.
-Hersh
Alma
2015-02-25 12:58:52
I'm thinking of retiring at age 56 or 57. Will I have to pay penalties if I roll over a portion of my 401(k) into an annuity and collect the interest on a yearly basis?
Hersh Stern (ImmediateAnnuities.com)
2015-02-25 13:22:54
Hi Alma-
Unfortunately, the answer is yes. Any interest withdrawals from your 401(k) will have an early distribution tax penalty of 10% unless you are at least 59-1/2 years old or if you qualify for an exception to the early withdrawal penalty. The list of exceptions is covered in IRS Publication 590 which you can locate here:
http://www.irs.gov/publications/p590/
Hersh
Bill
2015-02-27 11:07:13
My wife died recently. She had a $90,000 IRA which I want to buy an annuity with. Can I do that?
Hersh Stern (ImmediateAnnuities.com)
2015-02-27 12:48:06
Hi Bill-
Sorry that you lost your wife.
Regarding the annuity — what you have is called a spousal inherited IRA. You are permitted to buy an annuity with that money just make sure that the transfer takes place directly from the current IRA custodian to the insurance company. There is no 60-day rollover rule when inheriting IRA assets. So if you should receive a check from the current IRA custodian, that money will be taxed as ordinary income. You will be able to roll it over into an inherited IRA annuity. I suggest you consult a CPA for advice.
Hersh
Mike
2015-03-10 11:53:53
If I rollover a portion of my pre-tax IRA assets into an IRA Immediate Annuity (with spouse as Joint Annuitant), am I disallowed by IRA rules from having a '20 yr Certain' feature on this annuity? In other words, must a pre-tax IRA immediate annuity be in the form of single or joint life only, with no possibility of payout period certainty?
Hersh Stern (ImmediateAnnuities.com)
2015-03-10 12:21:35
Hi Mike-
You can add a period certain, installment refund, or cash refund beneficiary payment to an IRA immediate annuity. But there may be limits to the length of the beneficiary payment period time you can select so it doesn't exceed the number of years remaining in your RMD divisor. I'll explain with an example.
Say a 75 year old man decides to transfer some money from his IRA to an insurance company in order to set up an immediate annuity. According to the RMD table, his distribution period divisor is 22.9 this year. In other words, he's obligated to withdraw 1 divided by 22.9 of his IRA accounts this year as taxable income. Now if he bought a life annuity with a 40 year guarantee, the amount of income he would be receiving from this annuity this year would roughly 1 divided by 40. That's way less than he's obligated to withdraw according to RMD rules.
So you can add the period certain to your annuity, but take care not to have it be longer than the distribution period for RMDs.
-Hersh
Paul
2015-03-16 10:01:04
I'm thinking about transferring money from my IRA into an immediate annuity. My account has both traditional IRA contributions plus non-deductible IRA contributions. Can I buy one annuity with both types of money?
Hersh Stern (ImmediateAnnuities.com)
2015-03-16 10:13:44
Hi Paul,
Sorry, but insurance companies will not issue an immediate annuity which is funded with commingled pre-tax and after-tax monies. The reason is that the monthly income you receive from a pre-tax IRA is considered all taxable income.
While income received from a non-qualified annuity (one purchased with after-tax money) gets favorable tax treatment, only a small portion of each monthly payment from that annuity (the part representing new interest earned) is taxable. Your original after-tax investment amount ("cost basis") is not subject to income tax. That would be double taxation.
So it behooves you to buy two separate annuities each funded with monies of the same tax status, not commingled monies.
I'd also suggest before you start this process ask your current IRA custodian how it will report the tax status of the transferred funds. Will they tell the insurance company how much of the check amount is pre-tax and how much after-tax.
Frankly, even if the custodian company tells you they will let the insurer know how much of each type of money is being transferred, my experience informs me that the least risky way to handle this transaction to avoid reporting mistakes is to first split up your existing account before any transfer takes place. Open a new account with the present custodian and move all the after-tax money into that account. This way, you will have separated the pre- and post-tax monies at the source and there will be no way for anyone to confuse the tax status of your two annuities.
Good luck.
-Hersh
Jessica
2015-03-16 10:14:51
Once I roll over my traditional IRA to an annuity, can I contribute each year to my annuity plan tax deferred?
Hersh Stern (ImmediateAnnuities.com)
2015-03-16 10:32:07
Hi Jessica-
The answer will depend on what you have in mind to accomplish with an annuity and whether those goals can be met with the type of annuity that is either "single premium" or "flexible premium."
We'll start with a definition: A single premium annuity is always purchased with a one-time lump sum investment. A flexible premium annuity accepts additional premium payments (which you can make on occasion or on a recurring schedule).
Let's apply these definitions. If the reason you're considering an annuity is to set up a monthly income for life and you'd like that income to begin immediately, then that type of annuity you have in mind is called an "immediate annuity." An immediate annuity is always purchased with a one-time lump sum investment. Insurance companies do not accept additional premium deposits into an existing immediate annuity contract because your monthly income is determined and locked in based on the level of interest rates at the time you make your initial investment.
Of course, you can always buy another immediate annuity by investing each year's IRA contributions in a new contract.
If you're not ready to receive immediate lifetime income there are growth-type annuities to which you can add your annual IRA contributions. These are called "flexible premium" annuities. Examples of these are deferred interest (MYGA) or indexed annuities. You can read more about them by clicking these links:
Deferred interest annuities (MYGA): https://www.immediateannuities.com/deferred-annuities/
Indexed annuities: https://www.immediateannuities.com/fixed-index-annuities/
One final point. It's important to know that the majority of flexible premium annuities impose early surrender fees that restrict your access to your cash value. These surrender fees tend to be enforced on what's called a "rolling basis." This means, each year's new investment in a flexible premium annuity will be subject to the full surrender fee schedule. So even in your 10th contract year when surrender fees may have disappeared from your original, first year's deposit, there will likely be surrender fees on withdrawals from the 2nd, 3rd, etc., year's deposits.
Hersh
Karri
2015-03-27 09:39:40
I borrowed money against my 401k to purchase a house. My husband has an annuity that is just sitting there. Can he roll over his annuity into my 401k to pay back the loan? Thank you.
Hersh Stern (ImmediateAnnuities.com)
2015-03-27 12:39:02
Hi Kerri-
I think what you are asking is whether he can transfer money to your 401k tax-free.
First, let's assume your husband's annuity is funded with IRA or 401k money. So he owns what I call an IRA annuity. Now, if his annuity has a liquidity or withdrawal feature he could request a transfer of its cash value into an IRA or 401k account that he owns.
However, since couples are not permitted to commingle IRA or 401k accounts, these need to be kept under separate individual ownership, I believe your husband cannot roll over money from an IRA annuity at he owns into a 401k account that you own, without triggering a taxable event.
Hersh
Michael
2015-04-06 15:58:18
Can I roll over an IRA to an annuity and not be forced to take distributions at 70-1/2? I have enough income until age 80 and I want to be covered after that time.
Hersh Stern (ImmediateAnnuities.com)
2015-04-06 16:00:48
Hi Michael-
Yes, you can delay RMDs until age 85, on up to $125,000 or 25% of your IRAs (whichever is less) by purchasing a "QLAC." I've written a detailed article about QLACs here:
https://www.immediateannuities.com/qlac-qualified-longevity-annuity-contract/
-Hersh
Harvey
2015-04-13 10:03:43
I am 85 and have a traditional IRA. Therefore I must take annual required minimum distributions using a different factor(based on age)each year. Can I transfer this IRA to an immediate annuity? If so, would my monthly annuity payments remain constant?
Hersh Stern (ImmediateAnnuities.com)
2015-04-13 10:21:42
Hi Harvey-
Yes, you can transfer your IRA to an immediate annuity at any age.
You only need to make sure you cover the RMDs related to the amount of money you are depositing into the annuity in the 1st calendar year that you own the annuity. Beginning with the 2nd calendar year you no longer need to calculate or remove RMDs from the annuity. An immediate annuity is considered by the IRS to satisfy RMDs beginning with the second year.
I recently updated my detailed explanation about RMDs and annuities here:
https://www.immediateannuities.com/required-minimum-distribution/
Hersh
John
2015-04-21 10:24:12
If I take 100,000 from an IRA, do I have to pay the income tax at that time?
Hersh Stern (ImmediateAnnuities.com)
2015-04-21 10:26:37
Hi John-
When you apply for an annuity with IRA money, the insurance company sets up your annuity as an IRA account. All monies sent by your current IRA custodian to the insurance company are directly deposited into this new IRA account. Therefore, no income tax is due per IRA direct transfer rules.
You could even receive a check from your current IRA custodian, deposit it in a non-IRA savings account, and as long as you rolled over that same amount into an insurance company IRA annuity within 60 days, you would still not owe income tax per IRA rollover rules.
-Hersh
Ian
2015-05-06 10:05:39
If you purchase a qualified deferred fixed annuity with funds from an IRA and it begins paying a lifetime income after age 59 and 1/2 but before RMD age, can you choose to have the payments stay in the qualified plan or in your IRA? Or do you have to take the money and pay taxes on it? I cannot figure out the answer to this question!
Hersh Stern (ImmediateAnnuities.com)
2015-05-06 10:08:37
Hi Ian-
Let's see if I understand your question.
You are considering buying an annuity (today) with money from an IRA. Your strategy is to delay receiving any income from this annuity until sometime in the future but before you reach age 70-1/2 (when Required Minimum Distributions - RMDs are due).
I inferred from your question that you won't need the money from the annuity (before age 70-1/2) yet you want the annuity to start paying income before 70-1/2, albeit, into an IRA. Hmmm.
How about delaying the start of income until you really need it? Under the new QLAC rules you can delay taking money from an IRA until age 85 (way past the RMD date).
You can read more about QLACs here:
https://www.immediateannuities.com/qlac-qualified-longevity-annuity-contract/
Getting back to your question-- the direct answer is YES. You can open a self-directed IRA and buy an annuity using IRA money and have it held inside that self-directed IRA. Then whenever you turn on the income spigot, those distributions will still be inside an IRA. Be wary, though, of RMD rules which require you to aggregate the fair market value of your self-directed IRA with your other qualified accounts.
Hersh
Bridget
2015-05-15 09:54:14
My mom is 72 and has an IRA annuity that is annuitized. Can she take the annual payout and directly roll it to her traditional IRA without any tax consequences? (tax free rollovers) or is the payout taxable. The IRA annuity was funded with pre-tax funds. Thank you.
Hersh Stern (ImmediateAnnuities.com)
2015-05-15 09:55:42
Hi Bridget,
When you receive annuity payments from an IRA annuity, they are considered distributions and are taxable as "ordinary income." Of course, you can do whatever you'd like with the payments as long as you are aware that income tax is due on them. If you have earned income you can take this "after-tax" money and deposit it as this year's new contribution.
Just to review, IRA contributions can only come from so-called "earned income", which is limited to:
wages, salaries, tips
union strike benefits
long-term disability benefits received prior to the minimum retirement age of 55
and net earnings from self-employment.
-Hersh
Larry
2015-05-15 10:55:57
I'm thinking of moving my money from my 401K into an annuity. Do I start with my previous employer's 401k department?
Hersh Stern (ImmediateAnnuities.com)
2015-05-15 10:58:39
Hi Larry,
Once you decide the type of annuity and the amount you want to purchase, we'll provide you with an application which includes the insurance company's transfer authorization form. This form directs your 401k administrator where to send the money that you want to roll over from your 401k account. Most 401k plans will honor the insurance company's request and, after a few days of processing time, send the premium to the insurance company.
However, you will want to contact the custodian of your 401k to make sure that they will release money to the insurance company based on the insurer's paperwork. Some 401ks require you to complete their own forms and may not accept the insurance company's paperwork. Your 401k may require that the check for the annuity be mailed to your home address. The check will be made payable to the insurance company so you don't have any tax issues. You then mail this check to the insurance company yourself.
It's important to know that most insurance companies allow you from 30 to 60 days to have your money transferred to them while guaranteeing that the annuity rate you were quoted will not change. This is called a "rate lock" and is similar to a mortgage commitment which banks give to borrowers when their homes are being prepared for closing.
-Hersh
Doug
2015-08-03 07:15:12
I am 53. I have $100,000 in an IRA. Can I buy an immediate annuity for a fixed 7 year payout. I believe it has to last at least until I am 59.5 years old. The reason is that we can use that income for the next 7 years but won't need it after then.
Hersh Stern (ImmediateAnnuities.com)
2015-08-03 07:15:44
Hi Doug-
There are several layers to your question. I'll address them in order.
1. Yes, the insurance companies we represent do sell 7 year period certain annuities. With that kind of annuity your $100,000 plus the earned interest would be completely distributed to you in equal payments over the 7 years. So by the end of the 7th year, your policy would end without no cash value. If you'd like to get quotes for this type of annuity email me and I'll send them to you.
2. While this limited period annuity is available, if you buy your annuity with IRA money, there will be a 10% tax penalty to pay. First, know that the transfer from your IRA account to the insurance company would be tax-free. But because you'd be receiving withdrawals of IRA money prior to age 59-1/2 you will be subject to the 10% federal tax penalty on early IRA distributions. So, for example, if you're in the 25% tax bracket, the income tax on this income would be taxed at 35% (i.e., 25% plus 10% penalty tax).
3. You may have heard that income from an annuity qualifies as an exception from the pre-59-1/2 tax penalty. That is only true if you buy a lifetime annuity or take payments under the SEPP rule. Either way the monthly payment from a life annuity or SEPP withdrawal would be a much smaller dollar amount than how much you would receive by distributing $100k over a 7-year period.
-Hersh
Don
2015-09-14 12:45:09
If I purchase an immediate annuity for the joint lifetime of myself and my spouse (both over 71 years) from money that is in an IRA I assume the yearly payment from the annuity is paid within the IRA, meaning that it will remain tax deferred until taken out? I understand the year of purchase RMD rules and I understand that the yearly annuity payments are almost entirely return of capital in the early years.
Hersh Stern (ImmediateAnnuities.com)
2015-09-14 12:46:09
Hi Don-
You wrote "I assume the yearly payment from the annuity is paid within the IRA, meaning that it will remain tax deferred until taken out."
Sorry, but that's not how this works. Income generated by an IRA annuity is considered a taxable distribution. Once paid out from your IRA it no longer is tax-deferred.
Hersh
Debra
2015-09-18 13:05:48
I have a 401k that is with a well known brokerage (Fidelity). All of my 401k funds are invested in mutual funds and bonds. Do I need to sell my mutual funds and bonds before I can roll them over to an annuity? That is, do the funds that are rolled over from a 401k to an annuity need to be cash?
Hersh Stern (ImmediateAnnuities.com)
2015-09-18 13:06:50
Hi Debra-
Your 401k funds would need to be in cash in order to transfer them into an annuity. Once the funds have been moved to cash, it's a very simple process to transfer the funds from Fidelity to your chosen insurance company. With your annuity application will be a transfer form. This allows the insurance company to request funds directly from Fidelity. There are no Fidelity forms needed, the insurance company will handle it all.
-Hersh
Ed
2015-10-15 07:58:44
I have an IRA at TD Ameritrade. I will be 59 1/2 in January. Can I now (or in January) roll it over directly into an immediate, fixed annuity and not pay any taxes at the time I roll it over? I also have a 401K at my former company. I am unemployed but I can still use the 401K. Can I move that directly to an immediate, fixed annuity and not pay any taxes at the time I roll it over? If so, when would I pay taxes on that money?
Hersh Stern (ImmediateAnnuities.com)
2015-10-15 08:00:21
Hi Ed-
You can roll over the IRA or 401k money to an insurance company immediate annuity at any age, even prior to age 59-1/2, without adverse tax consequences. That's because the annuity will be issued as an IRA, so the funding of this annuity is really a rollover itself. The money is going from one IRA to another IRA which makes it tax-free (as long as this is the first time these monies are being rolled over directly from the IRA or 401k to the annuity, and not the second or third rollover of the same money within the last 12 months).
Regarding the 10% federal tax penalty for receiving monthly income or distributions from an IRA before you reach age 59-1/2-- That penalty does not apply when the income is being paid to you from a lifetime immediate annuity. Income from a lifetime immediate annuity is one of the exceptions to the 10% penalty law. In fact, even someone just 30 years old can receive income from his or her immediate IRA annuity and avoid the 10% penalty tax. There are no age restrictions as long as the income is being paid from the lifetime immediate annuity.
Ordinary income taxes are owed on the monthly payments you receive. You can ask the insurance company to withhold federal and/or state taxes from each payment, or, pay quarterly estimated taxes on your own.
Hersh
Jeffrey
2015-10-26 14:32:52
Assuming somebody had $100k available in both a taxable and qualified account and wanted to use the $100k to purchase an immediate annuity. Is it correct to assume it would be better to purchase it from the taxable account?
Hersh Stern (ImmediateAnnuities.com)
2015-10-26 14:33:49
Hi Jeffrey-
Rather than answer yea or nay, I'll review some of the pros and cons here and I suggest you meet with a fee-only financial planner for help with deciding the best route for your financial situation.
Qualified money—Examples would be the money you have in an IRA, 401k, or tax-sheltered annuity (403b). The benefit of accumulating money in a qualified plan is that the money grows tax-deferred. So you're not paying taxes on each year's earnings. This permits subsequent years' earnings to compound on an ever-growing base. Over time, more money accumulates in a qualified account than in a non-qualified account, all other considerations held equal.
The downside with a qualified account is that when you finally take withdrawals or receive distributions, you‘ll owe taxes on the full amount withdrawn that year (this is not the case with income received from a non-qualified annuity as I'll explain below). So if you are in a lower tax bracket after retirement, the argument goes, it's better to deferred the taxes while your money is in the "accumulation phase" in a qualified account until such time when your tax bracket is lower. In reality, research has shown that tax brackets do not drop for everyone at retirement. If you have a high net worth, it's likely, income from your investments plus social security, etc., will keep you in the 30%-35% federal plus state bracket for the rest of your lifetime. (This also does not take into account the possibility tax rates increasing over time.)
Non-Qualified money—Examples are your checking or savings accounts or a certificate of deposit (though you can also keep savings and a CD inside an IRA or 401k account).Earnings on non-qualified money are taxed in the year earned.
If you bought your annuity with such non-qualified or "after-tax" money, then only a fraction of each year's annuity income would be subject to income tax that year. The larger portion your annuity income is received by you tax-free.
So that's an overview. One more consideration—Your IRA/401k money is subject to Required Minimum Distributions (RMDs) when you reach age 70-1/2. That means you're obliged to withdraw a fraction of your IRA/401k accounts (around 3.5% in the first year and increasing slightly each year thereafter) and pay income taxes on that amount withdrawn. So a small amount of your qualified money moves to the non-qualified side of the ledger each year.
Hersh
Jerry
2015-11-10 07:22:40
Am I taxed on tax qualified money I place into an annuity?
Hersh Stern (ImmediateAnnuities.com)
2015-11-10 07:23:29
Hi Jerry-
The answer is NO and YES:
No -- you are not taxed on the rollover from your current IRA account into the annuity (which is set up as an IRA, too).
Yes -- Once the annuity begins making payments to you, then YES, you are taxed on the income as received.
Hersh
Bruno
2015-12-04 08:19:06
Can a 401k that was rolled into an IRA be rolled into an annuity?
Hersh Stern
2015-12-04 08:19:44
Hi Bruno-
Yes. I'll explain. When you moved your 401k into a Traditional IRA that was called a "Direct Rollover." Now if you move your new Traditional IRA into a second Traditional IRA that is called a "Direct Transfer." When you buy the annuity the insurance company sets up your account as a Traditional IRA.
While there are restrictions on the number of "Rollovers" you can make in one year, there are no restrictions on making multiple "Direct Transfers" during the year.
Hersh
Wayne
2016-01-08 10:24:05
Wife and I are thinking of combining our IRA and 401K accounts and then converting to an annuity.
Hersh Stern (ImmediateAnnuities.com)
2016-01-08 10:26:10
Hi Wayne--
You (separately from your wife) are permitted to combine your own IRA and 401k accounts into an annuity under your ownership with your wife listed as the joint annuitant, but not joint owner.
Similarly, your wife may combine her IRAs and 401k in her own annuity.
However, you are not permitted to combine both your and your wife's pre-tax IRA/401k monies into one large annuity. Each of your two annuities may only have one of you listed as its "owner" (with the other spouse being the Joint Annuitant).
Regarding the amount of monthly income you will receive from two annuities versus one larger annuity — the good news is that you give up only a small fraction (around 1%) of the monthly income you might otherwise have received if you could combine the two accounts. You would not be gaining much by combining accounts (even if it was permitted).
Hersh
Donald
2016-02-10 11:18:30
If I surrender a Fixed Index Annuity that was purchased with (IRA) qualified funds, does this go back to the IRA shell or is it all taxable as ordinary income?
Hersh Stern (ImmediateAnnuities.com)
2016-02-10 11:18:57
Hi Donald-
Assuming you receive a check from the insurance company for the cash value in your index annuity, you'll have 60 days to roll that money over into another IRA and defer the taxes.
Hersh
Rick
2016-02-16 14:30:08
I have a 401k which I wan to split into 3 immediate annuities. Can I do that?
Hersh Stern (ImmediateAnnuities.com)
2016-02-16 14:30:35
Hi Rick-
I would check with your 401k administrator to find out if they will cut 3 checks. Some plan sponsors will not. In that case, you'll need to rollover your full 401k balance to a local bank IRA and then a week later apply for your annuities to be paid for via a direct transfer from your new IRA account.
Hersh
Pete
2016-03-25 14:39:07
Can an Individual Retirement Annuity be rolled over from one insurance company to another?
Hersh Stern (ImmediateAnnuities.com)
2016-03-25 14:39:37
Hi Pete-
Sure, the I.R.S. permits it. Check with your current company to make sure there are no surrender penalties or negative market value adjustments for terminating the IRA.
Rhonda
2016-03-25 14:43:58
My boyfriend (age 60) cashed in his IRA annuity and within 60 days deposited the money in a different IRA annuity. Does he have to pay taxes on the cash out?
Hersh Stern (ImmediateAnnuities.com)
2016-03-25 14:46:07
Hi Rhonda-
No. What you describe sounds like an IRA to IRA rollover within 60 days.
Hersh
Gary H.
2018-10-30 14:45:28
I have a question that I haven't been able to understand via google searches. If we decide to do an immediate annuity we would be funding it from a rollover IRA. Premium would be somewhere between 300 and 500K but I don't understand how the RMD will be computed nor the IRS treatment of the income. I assume the income would be 100% taxable as ordinary income.
Hersh Stern (ImmediateAnnuities.com)
2018-10-30 14:50:46
You are correct that 100% of the payments you receive are taxable as income when you use an IRA, 401k, or any "tax qualified" account to fund the annuity.
The RMD part of your question is a bit more complicated. We have an article about RMDs and annuities here which should provide more insight:
https://www.immediateannuities.com/required-minimum-distribution/
However, should you have additional questions regarding RMDs, I encourage you to give us a call.
Harry
2019-03-22 13:29:45
Suppose I use funds from a Traditional IRA to purchase a fixed index annuity. At the end of the surrender period can I transfer the account balance back into an IRA and not need to pay the income tax on the balance at that point in time?
Hersh Stern (ImmediateAnnuities.com)
2019-03-22 13:31:16
Hi Harry,
Yes, you can definitely do that. It would just be a trustee-to-trustee transfer to another Traditional IRA.
Please let me know if you have any additional questions. I'll be very happy to help in any way that I can.
-Hersh Stern
Tricia
2019-05-07 09:33:39
I have a TSA that I would like to draw out. It is a 403B with my current employer. I am not making contributions any longer as they were not making enough income to my liking. I am 49. How can I get access to that money so I can do with it what I wish?
Hersh Stern (ImmediateAnnuities.com)
2019-05-07 09:34:09
Hello Tricia,
Generally, you cannot rollover funds from a 403b until you've reached age 59 1/2 or separated from the employer. However, I would highly recommend consulting with your plan administrator to get a clear answer to your question. Best of luck!
-Hersh
Ed T.
2022-02-03 13:33:51
Can I roll over funds from my IRA into an Individual Retirement Annuity, purchasing a period certain annuity and naming my wife as beneficiary and my son as contingent beneficiary?
Kyle (ImmediateAnnuities.com)
2022-02-03 14:06:03
Hi Ed,
Yes, you can definitely do this. We would help you to transfer funds directly from your current IRA custodian into an IRA with the insurance company. This is not a taxable event.
I would recommend using our free quote calculator to run a quote comparison for yourself: https://www.immediateannuities.com/
Please don't hesitate to reach out if you have any questions! Our toll-free number is (800) 872-6684.
- Kyle
Linda N.
2022-02-06 21:43:47
An independent fnancial advisor told me ALL lifetime annuities actually stop making payments when the annuitant turns 95. Is this correct?
Kyle (ImmediateAnnuities.com)
2022-02-09 14:43:27
Hi Linda,
That is incorrect. A "lifetime" annuity will make payments as long as the annuitant, or annuitants are living. It will only stop once all annuitants have passed away.
- Kyle
Gary
2022-08-22 17:00:52
An immediate annuity was purchased using my wife's IRA which I was receiving monthly payments. I was her sole beneficiary. She recently passed away. How do I treat the remaining balance? If I continue monthly payments I know it is taxable. Question? Would a lump sum distribution be better? Can I roll the payments into my Roth or IRA account?
Kyle
2022-08-23 10:29:53
Hi Gary,
Thank you for reaching out.
Unfortunately, we aren't able to answer these questions, as we weren't the agent on this immediate annuity. We would recommend reaching out to the servicing agent, or to the insurance company directly. They should be able to tell you exactly what your options are at this point. Best of luck!
- Kyle
Nicholas M.
2022-09-18 10:33:53
Can I roll over part of my Ira into a deferred fixed annuity with lifetime income for my wife and I without paying penalties. I am under age 591/2. I will not be taking any distributions until age 62.
Kyle
2022-09-20 09:10:06
Hi Nicholas,
Thank you for reaching out!
Yes, you should have no problem transferring funds from your Traditional IRA into an annuity. This would be a direct trustee-to-trustee transfer, so there would be no taxable event or penalty applied.
If you have additional questions, please feel free to call on our toll-free number, (800) 872-6684.
- Kyle
Jim T.
2022-10-27 15:45:06
Is there a limit on how much money I can rollover from my ira to an immediate annuity? I am 71.
Jim
Kyle
2022-11-03 08:08:00
Hi Jim,
Thank you for reaching out.
No. There is no particular limit on the amount you can transfer from your Traditional IRA into an annuity.
However, there may be a limit set by the insurance company regarding what percentage of your liquid assets you can use to purchase an annuity. Commonly, insurance companies will not allow you to use more than 50% of your liquid assets to purchase an immediate annuity.
- Kyle
Robert H.
2022-11-05 09:16:37
Hi Hersh, I'm aware of the maximum dollar amount authorized for QLAC's. I'm 67 yrs old, am interested in a joint SPIA with payments to begin in a year. Is it possible to purchase more for a SPIA than allowed
for a QLAC?
Kyle
2022-11-09 09:32:34
Hi Robert,
Thank you for reaching out!
There is no limit on the amount of IRA funds that can be used to purchase an immediate annuity (SPIA).
Best regards,
Kyle
Julio B.
2022-11-10 11:53:33
My wife will retire at 65 next year. She has a 401k from her employer. I would like her to roll it over into an annuity and receive a monthly sum. What type of fees are we looking at.
Thanks
Julio Barron
Kyle
2022-11-11 12:47:17
Hi Julio,
Thank you for reaching out!
There are no charges or fees associated with the purchase of an immediate annuity.
Please feel free to contact us at (800) 872-6684 with any additional questions.
- Kyle
Rick B.
2022-11-22 11:30:58
I'm 57 and retired...I have the option of taking a lump sum payment from my defined benefit pension (qualified plan) and am thinking of buying a deferred annuity (payments to start when I turn 65). I see references on how to do this with 401(k) and IRA rollovers, but is it possible to do a direct rollover from the pension plan itself into an individual retirement annuity? I have been trying to figure out how to do this with one of the big providers, but seem to be getting the runaround...they want me to fill out a 1035 exchange form, but that doesn't seem right...can you provide a little more guidance about my particular circumstance?
Kyle
2022-11-29 11:08:58
Hi Rick,
Thank you for reaching out.
Yes, you'll be able to rollover your defined benefit pension directly into a Traditional IRA with the insurance company of your choosing. This would essentially be the same process as rolling over a 401k, and your pension plan will likely have rollover paperwork they'll have you complete.
We do these types of transactions often, so please feel free to reach out for assistance. You can reach us on our toll-free number, (800) 872-6684.
Best Regards,
Kyle
Greg P.
2023-01-12 12:14:48
My wife is 63 years old. She has a traditional IRA with $160K. Can we buy a SPIA (single premium immediate annuity) for the whole amount of $160K or are we limited to only a percentage of that total dollar amount?
Kyle
2023-01-13 11:56:26
Hi Greg,
Thank you for reaching out!
It has more to do with your total household liquid assets than what your wife has specifically in her Traditional IRA. Many insurance companies will not allow the buyer to use more than 50% of their total household liquid assets to purchase an immediate annuity.
If you have further questions, please feel free to call us on our toll-free number, (800) 872-6684. We'll be very happy to help!
Best regards,
Kyle
Lisa
2023-02-10 20:30:59
I have a 7 figure lump I will receive at retirement. I would like to roll it directly to an IRA account. From there I would like to buy an annuity. I will keep some of my lump sum in my account and not in the annuity. Question is can I do this? Take the money out of the IRA to buy annuity while continuing to defer taxes? I will buy an immediate annuity. Do interest rates at the time of the purchase affected a fixed immediate annuity? I'm trying to buy it at the correct time? Should I split up the annuities?
Kyle
2023-02-13 14:34:12
Hi Lisa,
Thank you for reaching out.
Yes, you can absolutely do this. What you're describing would be a "partial transfer" from a Traditional IRA. Your funds would be transferred directly into a Traditional IRA with the insurance company, so this is not a taxable event. The payments you receive from your immediate annuity will be fully taxable as you receive them each year.
Interest rates, and your age at the time of purchase will determine the quotes you receive. It may be wise to split between a few different companies, depending on just how large of sum you're considering using.
I'd be happy to speak with you about your plans. Please feel free to call me on our toll-free number, (800) 872-6684.
Best regards,
Kyle
Rick B.
2023-02-21 07:31:11
Is it possible to take a 100% of my traditional IRA and purchase a 10year MYGA.I have been told you can only do 60% which is correct.Thanks
Kyle
2023-02-28 07:05:14
Hi Rick,
It has less to do with how much of your Traditional IRA you are using, and more to do with how much of your total liquid assets you are using. By "liquid assets," the insurance companies mean IRAs, 401ks, checking, savings, CDs, stocks, bonds, mutual funds etc. Generally, insurance companies won't allow you to use much more than 50% of your total liquid assets to purchase an annuity.
If you have remaining questions, please feel free to call me on our toll-free number, (800) 872-6684. I'll be very happy to help.
Best regards,
Kyle
Matt
2023-04-14 04:49:40
I'm currently 51yrs old & self employed. Can I transfer all the funds in my SEP IRA, SIMPLE IRA & INDIVIDUAL 401k to a MYGA & not pay taxes on distribution if I don't withdraw until 59 1/2?
Also does it matter that my IRA's are in my brokerage account & I'll be opening an IRA at an insurance company?
Kyle
2023-04-14 15:36:03
Hi Matt,
Thank you for reaching out!
Yes, you can transfer/rollover all of these accounts into a MYGA. Your annuity will be issued as a Traditional IRA, so this will not be a taxable event. Like you said, you'll just want to leave the funds untouched within the annuity until age 59 1/2, when you can start withdrawing without an IRS tax penalty.
If you have any additional questions, please feel free to call me on our toll-free number, (800) 872-6684. I'll be very happy to help.
Best regards,
Kyle
Jack W.
2023-04-29 21:24:00
Can you use rule 55 with an annuity? and do you have to wait till 62 to receive payments?
Kyle
2023-05-02 10:20:27
Hi Jack,
Thank you for reaching out.
This answer will depend on the specific type of annuity you're buying. If you're purchasing a SPIA (immediate annuity) with lifetime income payments, then you are exempted from the pre-59 1/2 penalty. However, a "period certain only" SPIA would be subject to the penalty for any payments received prior to age 59 1/2. Additionally, withdrawals from a deferred (or indexed) annuity prior to age 59 1/2 would also be subject to the penalty.
Please feel free to reach out at (800) 872-6684 if you have any additional questions.
Best regards,
Kyle
Larry M.
2023-05-27 20:40:00
I'm 70 years old. If I fund an annuity with my IRA but don't want to take out the monthly payments until I'm 73 (RMD age), can I roll those funds back into the annuity to increase the total value?
Kyle
2023-05-30 14:43:48
Hi Larry,
Thank you for reaching out.
No. Unfortunately you cannot do what you described. However, you could purchase a 3-year deferred annuity (or MYGA), let it grow for 3 years, then convert it to an immediate annuity.
If you have additional questions, please call me on our toll-free number, (800) 872-6684. I'll be very happy to help.
Best regards,
Kyle
Joe
2023-06-18 08:03:35
What happens if I die with a 20 year certain annuity payout after only being into annuity payout for 5 years. Does the new 10 years timeline for distribution come into play
Kyle
2023-06-20 11:50:28
Hi Joe,
That's a great question. The new Secure Act rules have made these types of annuities more complicated for non-spousal beneficiaries.
Assuming that you're talking about a non-spousal beneficiary - if there are more than ten years still remaining to be paid out, they will likely have to commute the value of the remaining payments. In other words, they'll have to convert the value of the remaining fifteen years of payments into a lump sump. They should have the ability to transfer that lump sum into an inherited IRA, where they will then be able to draw the payments out over the subsequent ten years.
Best regards,
Kyle
Rex T.
2023-06-22 19:47:04
Does ImmediateAnnuities charge a fee for helping an annuity purchaser roll over and IRA into one of their listed annuities and if so is it figured into the purchase price of the annuity alleviating any additional cost associated with purchasing one of your listed annuities?
Kyle
2023-06-23 10:25:13
Hi Rex,
Thank you for reaching out!
There is no cost for our services. We are 100% commission based, and there are no additional fees or costs at any point.
Best regards,
Kyle
Temo
2023-07-04 15:16:23
Can I blend my 401k and IRA and roll them over into a single annuity?
Thank you
Temo
Kyle
2023-07-05 09:21:26
Hi Temo,
Thank you for reaching out!
Yes, you can rollover your 401k and transfer your IRA into the same annuity. The annuity will be issued as a Traditional IRA, so the purchase of the annuity will not be a taxable event.
If you have additional questions, please give us a call on our toll-free number, (800) 872-6684.
Best regards,
Kyle
Jim
2023-08-13 10:05:55
What is the difference between rolling over my IRA to an annuity and purchasing a QLAC?
Kyle
2023-08-15 13:00:10
Hi Jim,
Thank you for reaching out.
A QLAC is just a very specific type of annuity. The process of transferring your Traditional IRA into an annuity is the same whether purchasing a "regular annuity" or a QLAC.
For more information on QLACs, you can read about them here: https://www.immediateannuities.com/qlac-qualified-longevity-annuity-contract/
Best regards,
Kyle
Steve N.
2023-08-15 13:22:20
Hi,
I'm looking for company's that offer IRA (tax deferred) annuity's
Kyle
2023-08-17 12:23:29
Hi Steve,
Thank you for reaching out!
Every insurance company we work with will issue IRA annuities. You'll just want to find a particular company and rate that you're happy with, and we'll be able to get you started with an application.
Please feel free to reach out with any remaining questions. Our toll-free number is (800) 872-6684.
Best regards,
Kyle
Deboarh
2023-10-30 21:25:16
Can I buy an Annuity with my 401K? I do not have an IRA.
Kyle
2023-10-31 16:00:34
Hi Deborah,
Thank you for reaching out!
Yes, you can certainly purchase an annuity with your 401k. You would roll over all or a portion of your 401k into an IRA with the insurance company. This is not a taxable event, and your annuity will be issued as a "Traditional IRA."
Best regards,
Kyle
Joel S.
2024-02-04 10:16:29
If I am over 59 1/2 and i have a backdoor roth ira thats under 5 years since conversion, can i fund an annuity with it or does that violate the 5 year rule?
Kyle
2024-02-08 09:23:52
HI Joel,
Thank you for reaching out.
Yes, you can fund an annuity with your Roth IRA. The annuity would be funded via direct transfer, so it would be issued as a Roth IRA. Since the Roth would be less than 5 years old, you would not want to take any distributions from the annuity until the Roth was at least 5 years old.
Best regards,
Kyle
Tony
2024-02-09 15:58:18
I'm thinking of rolling over my 401k to an annuity. I am currently 63, How soon after I open it can I start drawing from it? also if I get a joint annuity and when my with and I die can my adult living children be beneficiaries to my annuity?
Kyle
2024-02-16 12:36:37
Hi Tony,
Thank you for reaching out!
Generally, the income from your single premium immediate annuity (SPIA) would begin one month from the date the insurance company receives funds from your 401k.
Regarding beneficiaries - yes, you can have your kids listed as beneficiaries on the contract. You'll just need to choose an annuity option that contains beneficiary payments, like "Joint Life with Cash Refund."
If you have remaining questions, please call us on our toll-free number, (800) 872-6684. We'll be very happy to help.
Best regards,
Kyle