Annuity ,maturing soon. Can I transfer the money to an IRA?

Question

I have an index S & P 500 annuity maturing soon. When it
matures can I transfer the money to some other non annuity type of retirement account to avoid paying taxes?

Answer 1

It depends. There are two kinds of annuities: qualified and non-qualified. A qualified annuity can be rolled over to an IRA. A non-qualified annuity cannot (because after tax money was used to fund the annuity). Your annuity statement would tell you if it is "qualified" or "non-qualified."

If it is non-qualified, you can use Section 1035 to transfer it to another non-qualified annuity. That will defer the taxes (and penalties) you would otherwise pay if you just liquidated the annuity and took the cash. Good luck.

Jim Kirby, CPA

Answer 2

it sounds like an Indexed Annuity... The first thing to look at is if it is a Variable Annuity or a Fixed Annuity. ( VAs are usually used for inflation protection). Also, are you going to defer annuitization or are you going to immediately take distributions. Second, if you do this, it will be the last stop for this money probably. It will be tied up here for the rest of the life of the 70year old due to back end fees associated with most annuities. So you have to think, is it a good company with strong financial ratings ( Moody's, Standard and Poor's, Etc.). Third, 99% of the time these are recommended they are done so by insurance professionals. Not to be bad-mouting an industry that gets a wrongful black-eye ( insurance is very important ) but these agents or reps. make a lot of money off of annuities. Therefore, maybe ask the rep/planner/agent what his cut is. It could be a lateral move plus a way for the person to generate some commissions. Also, regular non-insurance financial advisors might recommend these for the same reasons. It could be a good place for an income stream and principal protection ( if it is not a VA ). Personally, my motto is Cash is King and if you can have access to your IRA/401k and it is in a tax-efficent, safe securities, accessability is the next big factor. PS: Make sure there is a survivor benefit ( this doesn't just mean a spouse if you are unmarried or a widower, these can be children too! ) This will be the best way to make sure the full amount of the annuity reaches your family. Also, life with period certain which means if the 70year old passes away the next day, a certain amount will still go to the family. If you annuities with just a Life option, you will get the biggest monthly payout but there is a lot of risk for passing that money on.

Answer 3

Ask your annuity company about extending the existing annuity, or look into a 1035 exchange. This section of the IRS code allows a tax-deferred exchange of an existing annuity for another annuity.

I'm sure any annuity company would be more than happy to explain a 1035 exchange for you.

However, you cannot transfer an annuity with is not already an IRA or other qualified retirement plan into an IRA.

You cannot avoid paying taxes on the annuity, you pay taxes as you take payments from the annuity. The rest of the annuity remains tax-deferred until it is distributed to you.

Answer 4

No.