Funding an Annuity
As you come increasingly closer to retirement age you need to seriously consider the potential benefits of lasting income that can keep up with the rising costs of retirement and healthcare. As individuals are living longer there has never been a better time than now to consider having a diversified retirement portfolio that carefully encapsulates all of your various needs.
You may want to consider the potential benefits of investing a part of your portfolio and doing this may increase the probability that your money won’t run out as you age. Thankfully, there are plenty of great resources available online (including some guidance from the IRS) if you want to learn more about rolling over funds. Read on to learn more about some of the things you need to consider when you’re contemplating a rollover of funds into an annuity product.
Rolling Over Funds With Variable Annuities
One of the common tools that individuals will use in this situation is what’s known as a variable annuity. The money that you put into a variable annuity is invested in bond and stock funds and these build until you begin collecting checks. After the time period in which you begin collecting checks, your withdrawals are guaranteed not to fall below a base level.
Right now those base levels for a 65-year-old individual are usually between 4.5 percent to 5 percent of the balance in the account when you begin to take money out. This is one of the reasons that these annuities have become so popular with individuals looking for rollover opportunities in recent years.
Given the fact that a guaranteed investment return is a common feature in these types of annuities, your balance could actually be higher for calculating withdrawals, but you might also want to factor in paying percentages each year based on investment and other fees linked to these kinds of annuities.
In recent years, investors have poured as much as $141 billion into variable annuities with more than 3/4 of that number going into products that have these kinds of guarantees. If you are concerned about funding your retirement and doing so safely, you may be contemplating the potential here as well.
Tips for Using Variable Annuities
If this is your first foray into variable annuities, one key tip is to keep it simple. You want to be focused on helping your money last and the best way to do this is to use a low cost immediate annuity that alongside any pensions retirement plans and social security will help to supplement your fixed retirement costs. You can price immediate annuities relatively easily and determine what your monthly income would be. Additionally, make sure to shop around in terms of fees and costs. If you focus solely on guaranteed income with an opportunity for growth, make sure you look at the prices and fees you will pay for having an annuity like this.
There are multiple factors to consider, including the rates, the costs, and other issues like customer service. Working with a company with a solid financial background can make a big difference in your own confidence level when you are rolling over other funds into annuities.
Transferring Your Annuity from One Company to Another
As there are newer annuity models rolled out every single year to capture the various features available to potential clients, you may consider rolling over your fixed annuity into a variable annuity with more investment opportunities. If you want to transfer your money within one annuity to another, you need to follow clear steps or you could end up facing penalties and taxes that you weren’t prepared for. Remember that annuities are seen as retirement vehicles and while their growth is tax sheltered, if you choose to withdraw the money before age 59 1/2, you could be facing penalties. Be aware of the steps below when you want to roll an existing annuity into a new annuity.
Look for any surrender fees from the existing insurance company. Since each policy comes with a surrender period, the company may be well within their rights of the contract to charge you a percentage of your balance if you move those funds before the period ends. You may just need to wait out the clock in order to avoid this.
Evaluate the benefits of a 1035 transfer. A 1035 transfer takes the funds from one insurance annuity to a new one without taking constructive receipt of those funds. This means there’s no tax on the growth and there are no federal penalties associated with early withdrawal.
Choose the best annuity for you. If there are no other assets set aside for retirement, a variable annuity may be your best choice. Stocks and other elements of a typical portfolio usually tend to keep pace with the inflation rate because they increase during times of booming economic activity just like inflation does. A fixed return, however, does not and by the time you end up retiring you could lose out on buying power even though you made money in the annuity itself.
Fill out the new annuity paperwork. The transfer papers will be completed when you purchase the new annuity. Make sure that your agent uses the 1035 transfer form if you are going this route.
Maintain documentation. Having the paperwork associated with your older annuity and the log showing the first amount put into the new annuity can be helpful in case there’s confusion or questions down the road.
Important Details About Surrendering a Variable Policy
Bear in mind that if you are ending an old variable annuity policy and anticipate surrender fees on a new or fixed variable policy, you should consider all your options first. One potential idea is to move the money in the variable account over to a fixed account so that you face no fees but still, in effect, have the benefits of a fixed annuity. If you are considering canceling your old annuity because you are let down with the returns on investment, you may need to instead tweak how the money is invested and thus avoid surrender fees.
What You Need to Know About Buying an Annuity with Your 401(k) or Your IRA
It is possible to take various retirement accounts such as your 401(k), your 403(b), a lump sum pension payment or your IRA and roll them into an annuity free of taxes. Annuities funded with 401(k) rollover or IRA rollovers are qualified plans which means you are allowing an insurance company to create an IRA annuity where you deposit your retirement funds directly. You could also have your employer roll your 401(k) funds into an annuity without withholding taxes because there are no mandatory withholding requirements pertaining to funds taken into an annuity by an employer.
You can locate or purchase an IRA or 401(k) annuity if you work with an annuities provider who is knowledgeable and experienced in this field. In some situations, you may even be able to identify a rate hold for many insurance companies before the company receives your distribution. If your money is currently in a 401(k) and you are interested in rolling it over to an annuity this depends largely on the employer’s procedures for issuing these kinds of checks.
As you can see, there are various elements involved in rolling over into an annuity and there are many different factors you should consider based on your individual situation. Knowing the route to go and speaking with an annuities professional is the best option for you in the event that you are interested in rolling over your annuity. Identifying the right product for you is a critical first step and learning about the advantages of such a product should be your next step in the research process. When done properly, an annuity rollover can benefit you significantly. Knowing what to expect and the benefits you can reap from this process can be extremely helpful.