Can I Roll My IRA or 401(k) Into an Annuity?

Rolling over a lump sum of your retirement savings annuity turns the money into a guaranteed lifetime income.

You can roll over several different types of retirement savings into an annuity, including:

If you decide to roll over your savings, you’ll need to make a series of decisions that will affect how you’ll receive payments from your annuity, how you’ll grow your investment and what happens to your investment when you die.

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

Direct roll overs can avoid tax implications and possible penalties. 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. The rule doesn’t apply to IRA annuities.

Rolling over your retirement savings into a qualified annuity has advantages including the sense of security of a guaranteed lifetime income. But you should also consider some of the drawbacks such a roll over includes before making this move part of your retirement plan.

There are several points to consider before deciding whether to roll over your retirement savings into an annuity. These include the type of annuity you select and the fees that go along with it.

Variable annuities usually come with higher fees than fixed annuities. This is because variable annuities typically require more hands-on management. This extra effort can cost you up to three percent more a year than fixed annuity fees.

Ideally, you’ll want to roll over enough of your retirement savings to meet your specific needs and financial goals.

You want it to be enough to generate a lifetime income that continues to cover your daily expenses. You’ll want to factor in inflation and how much of your expenses are covered by other retirement income sources such as Social Security or pension payments.

Talking with a licensed financial professional can help you determine what you will need to produce a steady retirement income. They can use that to help you decide how much you should roll over into a qualified annuity.

Tax implications for rolling over your retirement savings into an annuity depend on the type of retirement savings plan you have and how quickly you complete the retirement plan roll over transaction.

While investments in an annuity are tax deferred until you withdraw money from it, IRAs, 401(k)s and other retirement savings plans typically offer the same or similar tax advantages. You may want to talk with a tax professional about additional tax benefits you might receive from a roll over in your case.