How To Roll Over A 401k Into An Annuity
Are you approaching retirement and want to plan out your savings for this stage of your life? One highly effective way to do this is by purchasing an annuity, which is an insurance contract that lets you secure guaranteed, tax-deferred income (either in regular monthly payments or as a single lump-sum payment) to avoid outliving your savings upon retiring and supplement social security payments. More specifically, you can “roll over” a 401(k) or an individual retirement account (IRA) into an annuity with help from your employer. Here is a resource guide for how to achieve this.
Choose The Right Annuity
There are three key steps you should take when deciding what type of annuity is best given your financial situation:
1. Select your payment plan
Depending on when you wish to receive your regular payouts, you can choose between two distinct types of annuities: immediate and deferred. As its name suggests, the former type of annuity allows you to receive funds right away and is thus considered the better option if you’re near retirement or already retired. Meanwhile, a deferred annuity allows you to grow your money (without paying taxes on it) well before you retire.
2. Consider your investment growth plan
You can grow your investment via one of three types of annuities: fixed, variable, or indexed annuities. With a fixed annuity, your income can steadily grow at the same rate for the duration of your chosen term. On the other hand, variable and indexed annuities have rates of return that change depending on how underlying investments (such as stock market instruments) perform. Thus, your income can fluctuate significantly, and you may risk severe financial loss.
3. Consider whether you want to name beneficiaries
If you want any loved ones (spouse, children, etc.) to receive death benefits, be sure to name your beneficiaries. Be sure to discuss this extensively with your insurance company, as death benefits are sometimes taxable.
How Do I Roll Over my 401(k) into an Annuity?
The Internal Revenue Service (IRA) has specific rules for qualified retirement account rollovers, so it’s critical that you abide by these rules.
There are two ways to roll over your savings into an annuity: directly or indirectly. A direct rollover is simpler and involves moving funds from your 401(k) pension directly into a new “IRA annuity.” This can help you avoid costly tax penalties and your employer can do it for you. Direct rollovers also generally satisfy IRS requirements for annual required minimum distributions (RMDs), which typically take effect when you reach age 72. This phrase refers to the time when you’re required to begin withdrawing a specific percentage of your pre-tax 401(k). Certain insurers offer annuities that allow you to make RMD withdrawals without incurring penalties.
An indirect rollover is when you transfer money from your retirement account to your bank first and then into an annuity.
How Much Money Should You Roll Over?
The answer to this question may vary depending on your personal finance objectives. Ideally, you want the guaranteed income from your annuity to cover all of your monthly expenses. An experienced financial advisor or insurance agent can also offer specific recommendations given your unique situation, needs, and goals.
Speak To The Consultants At Matador
Contact the professionals at Matador Insurance Services to learn more about the process of rolling over a 401(k), Roth 401(k), or another type of retirement savings account into an annuity. We offer fixed annuities designed to help you obtain guaranteed income when you retire. Our experienced insurance agents understand exactly what type of situation you’re in and can help guide you through the rollover process and clarify or provide any missing information. Contact Matador Insurance Services today by reaching out to us online for more information about our annuities.
