401k Rollover to Annuity: convert 401k to Annuity In Florida
401k Rollover to Annuity: convert 401k to Annuity In Florida
What are annuities? 401k Rollover to Annuity: convert 401k to Annuity In Florida
Annuities have been around a long time. In fact, the idea of paying out a stream of income to an individual dates back to the Roman Empire.
Despite this long history, annuities are an often overlooked financial product for creating a source of income in retirement.
Depending on the type of annuity you purchase, they provide guaranteed regular payments for either the fixed term you select, or for the rest of your life.
Indeed, one of the key attractions of annuities is they provide a guaranteed income, regardless of how investment markets are performing.
The payment you receive is locked in when you purchase the annuity and remains the same regardless of what happens with investment returns.
Do you need an annuity?
So let’s start with whether you’re a good candidate for an annuity.
Given that you’re either retired or nearing retirement, I assume the annuity recommendation came up because you’re looking to have a source of post-career income you can’t outlive regardless of how the financial markets perform.
For that goal an annuity can often make sense, as an annuity is the only investment that can provide income that’s guaranteed for life.
But remember, you’ll already have at least one source of guaranteed income in retirement — Social Security.
So what you actually want to determine is whether you need more guaranteed income than Social Security and any pensions will provide.
One way to tell how much, if any, additional guaranteed income you require is to budget and look the expenses you’ll face in retirement.
You won’t be able to predict your spending to the penny.
There are too many uncertainties for such precision.
But to the extent you can do some “lifestyle planning” — i.e., thinking seriously about how and where you’ll live after retiring — you’ll be able to come up with a budget that should reasonably reflect your retirement spending.
If after going through this exercise you find that the income you’ll get from Social Security and any other sources of assured income is enough to cover all or most of your essential living expenses, then you may not need any additional guaranteed income from an annuity.
If, however, Social Security and any other sources of assured income don’t generate enough spending cash to cover all or most of your essential living expenses, then you might want to think about investing a portion of your assets in an annuity.
Are annuities a good idea?
For some retirees, annuities can be a valuable strategy to consider when developing your retirement income plan.
They provide a source of diversification for your retirement income, while also minimizing the risk of outliving your savings and having insufficient income to fund your life after work.
Although they have many benefits, annuities are not appropriate in every situation, so it’s important to seek professional advice about their suitability for your particular financial circumstances and goals before you purchase one.
401k Rollover to Annuity: convert 401k to Annuity
It is important to know that the Internal Revenue Service (IRS) has rules for moving money from one retirement account to another. Tax-deferred retirement accounts are known as qualified retirement accounts. The rules for qualified account rollovers, or rolling over money from one qualified account to another, are very specific.
For instance, you can move money directly from one tax-deferred retirement account to another via a direct transfer. You can also move money from one tax-deferred account into a personal account, then move the money to its final tax-deferred account from there. However, there are limits on how many of these types of transfers you can do each year. Therefore, a direct rollover is preferable.
A direct rollover can remove headaches from the transaction and avoid tax consequences. When you roll over your IRA, 401(k), 403(b), or lump sum pension payment into an annuity, this creates an “IRA annuity.”
The insurance company allows you to deposit your funds tax-free directly into your new qualified annuity. The other benefit of rolling a 401(k) or IRA to an IRA Annuity is that it will satisfy the IRS rules for required minimum distributions, or RMDs.
If you want to move money from a traditional IRA or 401(k) into an annuity, there should be no tax impact. The annuity would then simply act as a retirement account, and, in the eyes of the IRS, your IRA rollover does not count as a taxable withdrawal.
The best way to accomplish this is to make a direct transfer between your IRA or 401(k) and the insurance company issuing the annuity. If, for whatever reason, you receive the funds into your bank account, you must make sure that money makes its way back to a retirement account within 60 days or be subject to a significant tax penalty.
How Much Should You Roll Over? 401k Rollover to Annuity: convert 401k to Annuity
Determining how much of your retirement savings to transfer into an annuity depends on your personal finance goals. Ideally, you should be able to cover your daily expenses with guaranteed income. Whether that income comes from social security, an annuity, a pension or, most often, a combination, make sure you have your basic living expenses covered!
Benefits of Rolling Over a 401(k) or IRA Into an Annuity
There are 2 major benefits of rolling a 401(k) or IRA into an annuity:
- You have someone looking out for your investment
- You will have a guaranteed income for life
Once you retire, no one is contributing to your 401(k) any longer. What happens at this point is that no one is looking out for your investment. Your 401(k) might do well, but it might not. Oftentimes, you’ll get a monthly statement in the mail, and you’ll have no idea what it’s even saying.
Having a more hands-on approach with a qualified agent gives a ton of clarity and peace of mind. After all, this is your life’s savings! You want to know that it’s being taken care of.
The second benefit is safety. When you retire, you’re moving from an accumulation stage to a preservation stage. When we move into the preservation stage, we have to adjust our investment strategy.
You want to be more conservative and put safety as a higher priority over risk. Safety first, competitive interest rates later.
Income from your Annuity
The income you receive from an annuity is set when you buy the annuity and does not change over time.
Your payments can be received monthly, quarterly, every six months or annually – the decision is up to you.
Buyers can also choose to protect their income payments against inflation by paying an additional fee to have the payments indexed each year, either by a fixed percentage or in line with inflation.
Your actual income payment depends on a number of factors, such as how much money you are prepared to pay towards the annuity and the rate the annuity provider is currently offering.
This is normally based on complex actuarial calculations covering things like your predicted lifespan, the options you have selected for your annuity and the outlook for investment market returns.
What happens to my annuity when I die?
Depending upon how you set your annuity up at the beginning, your annuity will either continue paying your spouse, go to whomever you named as a beneficiary (or to your estate), or to the company.
If you chose lifetime payments, they stop when you do, and anything left in the account goes to the insurance company.
If you chose income for a guaranteed period, it pays for that period, or until you pass, and the balance goes to your beneficiary.
If you chose lifetime period certain, then the payments are guaranteed to last a certain number of years, even if you pass (the payments continue to your beneficiary), and then stop at the end of the specified period.
If you chose joint and survivor, the payments continue until you both have passed, and whatever is left goes to your beneficiaries.
Mintco Financial – 401k Rollover to Annuity: convert 401k to Annuity Financial Planning – Retirement Planning
There are many options to choose from when thinking about how to invest your 401(k) savings.
You should consider your overall retirement strategy, how you will maintain tax efficiency, how best to grow and protect your assets, and what type of investment products will best meet your needs in the future.
Depending on your goals, you may want to consider an IRA product that enables you to invest in annuities, bonds, mutual funds, money market accounts, or something else.
There are rollover options that combine features of these products such as retirement packages with insurance guarantees, periodic drawdowns, etc.
Thinking about a 401(k) rollover? Schedule a complimentary consultation to review your financial goals and discuss retirement strategies including rolling over your 401(k).