Should You Rollover Your 401(k) / 403(b) / or IRA To An Annuity?

Imagine waking up to find out that you lost $100k in your 401(k)/ 403(b)/ or IRA because of a downturn in the stock market! A gentleman we spoke with recently didn't have to imagine it because that is exactly what happened to him and he isn't alone in his situation.

Many of us know with 100% certainty that upon arriving to retirement age that we will need to have funds available that we will need to live off of for the rest of our none working life. With that being the case, most of us have decided to place our money into retirement accounts such an 401(k)/ 403(b)/ or IRA to save and grow our money for the purpose of living off of that money during retirement.

What's interesting is that with so many of us having an 401(k)/ 403(b)/ or IRA for the purpose of having funds so we no longer need to work during our golden years, we would think that our retirees would be living better than ever before in their retirement years. The sad reality is that many of those who retire have to actually go back to working again shortly thereafter. Maybe you know some of those individuals yourself. Many have found that, depending on the type of retirement account they had, when they go to utilize their retirement funds, taxes on the money in their account ate up a good portion of the money or the volatility of the stock market depleted chunks of their retirement funds. Which means they actually had less money than they anticipated and now they are forced to have to go back to work when they should be in a position to simply enjoy their retirement job free. 

Why Transfer Money To An Annuity?

An annuity contract is the only product that can create guaranteed income for life. You can choose to annuitize your annuity to receive annuity payments over a period of time or for life or add an optional income rider to generate a paycheck you can never outlive. Sometimes the insurance company will provide a paycheck that increases to help with inflation and the cost of living.

Unlike an 401(k)/ 403(b)/ or IRA, you will not lose money due to market downturns in a fixed annuity or fixed index annuity. If the markets have a down year, you earn zero interest. In exchange for this protection, you are limited on the upside you can get each year, unlike an individual stock through a mutual fund.

Consider your retirement goals. If one of your goals is to create an income stream to supplement social security, then an annuity may be a good choice. Most people interested in rolling over their IRA or 401(k) into an annuity are either in retirement or close to retiring.

Usually, this happens because they want to ensure they won’t outlive their money, and annuities can provide that peace of mind. Others fear the stock market’s risks and want an annuity’s guaranteed income as part of their retirement investment strategy.

How To Choose The Right Plan

Choosing the right type of annuity is critical for creating the best retirement plan for you. We'll cover a brief overview of the types.

The first item to consider is when you want to receive your payouts. For this, you choose between a deferred annuity and an immediate annuity (also known as an income annuity).

Deferred annuities are usually purchased before retirement to grow money on an income-tax-deferred basis.

On the other hand, immediate annuities are better suited for those close to or in retirement. They allow you to tap into the money saved, providing retirement income that could last you the rest of your life.

Purchasing either an immediate or deferred annuity as part of a comprehensive retirement plan can offer lifetime income.

Next, you need to think about how you want your money to grow. If you are interested in steady growth from a guaranteed income stream, consider a fixed annuity.

With a fixed annuity, your money grows at a steady, guaranteed rate of return for the duration of the term you select.

With a fixed-indexed annuity, the rate varies depending on the linked indexing strategies you choose for your annuity, such as the S&P500.

Also, be sure to consider if you want death benefits and, if so, who will be your beneficiary.

The annuity death benefit comes in handy should you die before receiving all of your payouts. It is important to name at least one beneficiary on all of your retirement accounts or insurance contracts.

How Does A Roll Over Process Work?

There are two ways to roll over your retirement savings to an annuity – through a direct roll over or an indirect roll over.

Direct rollovers occur when you transfer your retirement account funds — within annuity rollover rules — directly into an annuity. Under these circumstances, direct transfers are tax free. They can also meet Internal Revenue Service (IRS) requirements for required minimum distributions (RMDs).

An RMD can kick in when you turn 72. That’s when you are required to begin taking out a certain percentage of your pretax retirement savings each year in order to begin paying income tax (the IRS gets impatient and wants their money!). The rule doesn’t apply to IRA annuities. Direct transfers are commonly done by mailing or wiring funds directly to the new plan provider, but on some occasions, the old plan provider may mail the check directly to you, payable to the new plan provider. This still counts as a tax-free direct transfer.

Indirect rollovers, however, are more complicated and have significant tax consequences if not executed correctly. Indirect rollovers involve withdrawing your funds from a retirement account — typically when you change jobs or other reason allowed under the tax laws prior to retirement. To remain tax-free, the funds must be rolled over within 60 days of distribution. Otherwise, the distribution is income taxable and may also be subject to the penalty for withdrawing funds prior to age 59 and a half.

The advice here is simple: whenever possible use direct transfers.

How Long Does A Rollover Take?

There is no one-size-fits-all answer when rolling over a 401(k). The amount of time it will take to complete the rollover process will depend on several factors, including the type of 401(k) you have, the financial institution where your 401(k) is held, and the financial institution where you want to roll over your 401(k).

If you have a traditional 401(k), you will likely be able to complete the rollover process within a few weeks. However, if you have a Roth 401(k), the rollover process may take a bit longer, as special rules apply to Roth 401(k)s.

Finally, it’s important to note that you may be subject to taxes and penalties if you do not complete the rollover process within 60 days. Therefore, it’s essential to work with a financial professional (like Family For Life Insurance) or tax professional to ensure that you complete the rollover process correctly and promptly.

How Much Money Should I Roll Into An Annuity?

The amount of money you should roll over into an annuity depends ‌on your specific needs and goals. You want the amount to be enough to generate a lifetime income sufficient to cover your daily expenses. You should also factor in inflation and how much of your expenses are covered by other retirement income sources you receive, such as Social Security or pension payments.

How To Find An Old 401(k)

Contact Your Former Employer.

The most straightforward approach to check up on a previous 401(k) plan is to contact the human resources department or a third-party administrator (TPA) at the company where you used to work.

U.S. Department of Labor's Employee Benefits Security Administration

The U.S. Department of Labor has a database for people looking for retirement plans that have been abandoned. This database will help you determine if the plan has been terminated and who to contact.

National Registry of Unclaimed Retirement Benefits

Your former employer might have left money for you in a retirement account. You can check to see if they did by going to

Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation’s Missing Participants Program has recently been expanded to include 401(k) plans.

Your Next Steps

Retirement account rollovers can be a great way to consolidate your retirement savings or to move your money into a better investment plan with less risk of volatility from the "market". By following the steps outlined above, you can efficiently complete a rollover! And by choosing the right investment plan for you, you can ensure that your retirement savings are working hard in your behalf. 

Click HERE to book your free consultation to see if a rollover is right for you.

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