How to Roll Over an IRA or 401(k) to an Annuity


If you are like millions of other workers in America, you have probably saved for retirement in an IRA, a 401(k) plan, or another tax-deferred account. The chances are also high that you worry about running out of money in retirement. Fortunately, you can put some of that fear to rest by having an annuity as part of your overall retirement strategy. Annuities are fundamentally unique savings vehicles because they can pay you a guaranteed, set stream of income that will last as long as you do.

Annuities can supplement your Social Security payments by providing additional guaranteed income that will remain steady regardless of how the markets perform. They can also help ensure that you have enough money coming in every month to cover all your living expenses.

In this article, we will go over more of the steps of how to roll over an IRA or 401(k) into an annuity. None of the steps are especially complex, but they must be done properly to ensure no tax consequences from the rollover (unless you are converting your annuity to a Roth account). To start off, let’s talk more about why someone might want to move some of their retirement money into an annuity.

Why Roll Retirement Money Over into an Annuity?

Annuities are different from all other financial vehicles because they can pay you a guaranteed stream of income for the rest of your life. This means that you will continue to get income payments even if the money in your annuity contract value runs to zero.

If you are worried about running out of money in retirement, the risk of investment losses affecting your income, or other pitfalls affecting your lifestyle, an annuity can help bring more financial peace of mind. It can also be a boon for those wanting more income on top of what Social Security pays them.

How Much Money Should I Roll Over into an Annuity?

This will depend on your financial situation and goals. An annuity can help you cover your monthly living expenses and keep up your lifestyle in retirement. It can also supplement your income from Social Security (and maybe a pension if you have one). You may already have enough dependable income from Social Security and your pension to meet your living expenses.

Either way, you can at least roll over enough into an annuity to help you generate a stable retirement income that you can rely on after you stop working. Your risk tolerance and retirement timeline also have a role in determining how much money you might put into annuities.

Your financial professional can help you with exploring options for your specific situation, including what can get you to the guaranteed income number that you might need. But your financial timeline should also line up with the length of surrender period, or the maturity period of your annuity, in your contract.

The annuity money should also be earmarked for guaranteed income and not needed as a source of major liquidity. For example, if you think you will need to pull out all your money from an annuity in five years, then you probably don’t belong in an annuity.

What Type of Annuity is Right for Me?

There are many different types of annuities today. If you need immediate income, then an immediate annuity will start paying you a guaranteed stream of income right away. However, you will lose access to your funds and can’t change the terms of the payout once it has begun. If you won’t need any income until later, then you could get a deferred annuity that will grow for a period of time and then pay out the income when you need it.

There are three primary types of deferred annuities. Fixed annuities pay a set rate of interest, while fixed index annuities can earn interest that is based on financial benchmark index and its ups or downs. When the index has a gain, the fixed index annuity is credited a portion of that growth. Variable annuities invest in mutual fund subaccounts that rise and fall in tandem with the markets. It is possible for you to lose money in a variable annuity. 

You may also take other factors into account, such as the annuity death benefit and how the proceeds may be paid to your loved ones. Some annuities pay a lump-sum death benefit while others may stretch it over time, for example.

How to Roll Over Your Retirement Money to an Annuity

If you have money in an IRA or 401(k) (or similar retirement account), then you will start the rollover process by completing an application with the annuity company that you want. You will have to answer each question and then submit your application to the insurance company. In many cases, this process can be done online.

You can then fill out a transfer form that the insurance company will send to your current plan to requisition your funds. You could also have the plan just send you a check. However, then you must get that check to the insurance company titled correctly within 60 days, or your rollover will become coded as a distribution. If this happens, your distribution will become fully taxable, and you may also have to pay an additional 10% penalty if you haven’t yet turned 59.5.

For this reason, it’s prudent to use a direct transfer to move your money from your current retirement plan or account into an annuity. This way, the money goes directly to the annuity company and doesn’t require your involvement.

If you are at the age where you must start taking required minimum distributions, then virtually all annuity companies will allow for this without penalty. These distributions are taxable, but you can elect to have taxes withheld from them.

The Roth Factor

If your money is in a Roth IRA and you want to put it into an annuity, then you can enjoy a stream of income tax-free cash-flow during retirement that you can count on every month for life.

You must have had a Roth IRA open for at least five years before you can take any tax-free withdrawals, and you must be at least 59.5. However, once these provisions are met, you can take out money from your Roth account without having to worry about income taxes.

5 Questions to Ask Regarding Whether Rolling Retirement Money Over to an Annuity Makes Sense

#1 What Is Your Risk Tolerance?

If you want to get some growth potential for your money without risk of market losses, you may want a fixed index annuity. Fixed annuities may also be an option if you want a rate of guaranteed growth.

#2 What Is Your Time Horizon in Retirement?

As mentioned before, if you think that you will need all of your money inside the annuity back within a few years, then an annuity may not be a good choice. For insurance companies to meet their obligations to annuity owners, every annuity has a surrender period.

During that period, you will pay a penalty if you take out more than a certain percentage within the first few years. Many annuities allow you to withdraw 10% of the contract value, and the penalty kicks in for percentages above that. This is called a “free withdrawal.”

#3 What Are Your Retirement Income Needs?

If you know that Social Security alone won’t cover all your retirement expenses, then you can count on an annuity to help you generate the income you need.

#4 What Is Your Life Expectancy?

If you come from a family with a history of long living, an annuity can ensure that your money will last for as long as you do. Annuities are designed to provide lifetime income.

#5 Do You Want to Leave a Legacy for Your Heirs?

Some annuities provide an enhanced death benefit that can leave your heirs more money than the current contract value. Some will pay out the death benefit proceeds in a lump sum, while other annuities stretch the proceed payouts over a period, like five years.

Ask your advisor about the details of your annuity contract if this also matters to you.

The Bottom Line

Many people roll some of their retirement money into annuity contracts every year. The process is pretty straightforward and can provide you with many benefits, especially for maximizing retirement income.

Consult your financial advisor for more information on annuity rollovers and whether one is right for you. The most important thing is that the annuity should make sense for your situation and your goals. It must solve a problem in your financial plan that other assets don’t.

If you are looking for a retirement-focused financial professional to help you in general, many independent and experienced financial professionals are available here at You can get started with an initial appointment to discuss your situation by visiting our Find a Financial Professional” section and connecting with someone directly. Should you want a personal referral, please call us at 877.476.9723.

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