Can You Roll Over a 401(k) Into an Immediate Income Annuity?
Saving enough money to retire happily is only one part of a well-rounded retirement plan. Another important part of the planning process is deciding what to do when you retire. For example, you might have accumulated a significant nest egg in your 401(k). You can invest that money in stocks and bonds, but you have no guarantee your money will be safe. Alternatively, you could roll over your 401(k) into an immediate annuity, which offers a secure lifetime income.
When you purchase an immediate annuity with your 401(k), you’re handing over control of your nest egg — or at least part of it — to an insurance company. The insurer calculates your likely lifespan, and agrees to pay you a set amount each month for as long as you live. You can also choose to structure your annuity so it provides an income for your spouse, and pays as long as either of you is alive. If you outlive your money, the insurance company will dip into its own pockets to ensure those guaranteed payments last as long as you do.
You could put one portion of your 401(k) into an immediate annuity, and use the rest to purchase mutual funds and other investments within an IRA. That way you continue to have control over a large portion of your capital, but still have a safety net of guaranteed income. Another alternative is to purchase a deferred annuity, rather than an immediate annuity. With a deferred annuity you postpone taking an income until later, which raises your monthly payments.
Rolling your 401(k) into an annuity allows you to transfer your retirement money from restrictive 401(k) plans into a safe investment, one that offers you far more flexibility in investment options. A rollover into an annuity gives you continued tax-deferral, protects against loss of principal, and offers living and death benefits that can protect not only you, but designated beneficiaries as well. With an annuity, you can set it up to receive guaranteed income for the rest of your life – no matter how long you live. Furthermore, annuities are a very suitable investment product for those who want to ensure they have sufficient retirement savings, they protect against market volatility and offer decent returns. Do not leave control of your retirement savings with your former company.
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