{"id":23059,"date":"2014-11-07T14:12:00","date_gmt":"2014-11-07T14:12:00","guid":{"rendered":"https:\/\/www.annuityfyi.com\/?page_id=23059"},"modified":"2022-12-16T17:33:12","modified_gmt":"2022-12-16T17:33:12","slug":"rolling-ira-annuity","status":"publish","type":"page","link":"https:\/\/www.annuityfyi.com\/retirement\/rolling-ira-annuity\/","title":{"rendered":"Rolling an IRA into an Annuity"},"content":{"rendered":"
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Overview<\/strong><\/h4>\n\n\n\n

Many investors have contributed to IRAs during their careers. Many advisors recommend that an investor roll such plans into an annuity when they near retirement. This article will review the potential advantages and disadvantages of such rollovers.<\/p>\n\n\n\n

First, let\u2019s review why folks contribute to IRAs to begin with. The primary reason is the ability to contribute investment dollars tax-free, and for the investment to grow tax-free. For example, money contributed to an IRA is done pre-tax \u2013 the investor does not pay income tax on these funds when they are contributed. Taxes are paid when the funds are eventually withdrawn, but for most this is done during retirement years when the investor\u2019s tax bracket is lower. Also, investments in an IRA grow tax-deferred \u2013 resulting in a significantly higher retirement nest egg than an identically-performing investment whose gains are taxed. Most IRAs are invested in individual stocks or in mutual funds.<\/p>\n\n\n\n

With that in mind, let\u2019s explore three major advantages of rolling an IRA into an annuity.<\/p>\n\n\n\n

Insurance on Your Retirement<\/strong><\/h4>\n\n\n\n

First and foremost, rolling an IRA into an annuity contract provides insurance on your retirement investment. The two largest assets of most households are the house and theIRA (or other employer-sponsored plan). Most people wouldn\u2019t dream of not having insurance on their home (in fact most mortgage lenders require homeowners to carry home insurance, and many states require it as well). Yet many investors approaching retirement have no insurance on their retirement plan; rather, it can fluctuate based on the fund manager and market dynamics. Annuities can provide protection in a down market, guarantee lifetime income, and the ability to guarantee a certain amount is passed on to heirs. These can be a considerable advantages to all investors, but in particular those who have accumulated substantial assets and then have the misfortune of retiring in a down market.<\/p>\n\n\n\n

Lifetime Income and Inflation Protection<\/strong><\/h4>\n\n\n\n

Secondly, by rolling an IRA into an immediate annuity or variable annuity with a lifetime income benefit, an investor can enjoy an income stream based on a predetermined and guaranteed rate, even in a down market. Recent market turbulence only serves to strengthen this point. Throughout the country, millions of workers approaching retirement have discovered that their plan balances are now too low to provide them with the income they need when they stop working. Furthermore, in addition to providing protection to one\u2019s beneficiaries, certain immediate annuities have inflation adjustment features to ensure that lifetime income keeps up with increased cost of living.<\/p>\n\n\n\n

Tax-Free Rollovers and Continued Tax-Deferred Growth<\/strong><\/h4>\n\n\n\n

Rolling an IRA into an annuity is also a tax-free process. Annuities funded with an IRA rollover are \u201cqualified\u201d plans. This enables insurance companies to create \u201cIRA annuities\u201d into which an investor can directly deposit their retirement funds. Additionally, there are no distribution taxes either. While pension and other pre-tax distributions can be subject to taxation when withdrawn, federal law permits prospective investors to roll their payments into an immediate annuity tax-free. And of course, the funds within the annuity will continue to grow tax-deferred.<\/p>\n\n\n\n

Things to Consider Before You Roll Over Your IRA<\/strong><\/h4>\n\n\n\n

When considering all of the advantages of rolling an IRA into an annuity, be aware of the following potential issues:<\/p>\n\n\n\n