When you retire or change jobs, your 401(k) does not have to stay with your old employer. One option some people consider is moving part or all of it into an annuity. Here is how that process generally works and what to think through first.
Your main choices
With an old 401(k), you can usually leave it where it is, move it to a new employer's plan, roll it into an IRA, or take a cash distribution. An annuity held as an IRA, often called a qualified annuity, is one form of IRA rollover.
Use a direct rollover
In a direct rollover, the money moves straight from your 401(k) to the new account, and taxes are generally not withheld. If the check is made out to you instead, the plan usually withholds 20% for taxes and you generally have 60 days to deposit the full amount, or the difference may be taxed and penalized.
Why some people consider it
- Protection of part of their savings from market losses.
- The option of a lifetime income stream.
- Tax-deferred status continues, just as in the 401(k).
Questions to ask before you move money
- How long is the surrender period, and what are the charges?
- Are there rider fees, and what do they pay for?
- What fees and investment choices does my current 401(k) have?
- How much of my savings might I need to access in the next few years?
- Will required minimum distributions be easy to take from this contract?
It does not have to be all or nothing
Many people move only a portion of their savings into an annuity and keep the rest in more flexible accounts. Talking with a licensed professional, and your tax advisor, helps you weigh what fits.
The bottom line
A rollover can be done without taxes when handled as a direct rollover, but an annuity is a long-term commitment. Compare costs and flexibility before you move anything.
Learn about annuitiesThis article is for educational purposes only and is not tax, legal, or investment advice. Insurance and annuity products are not deposits, not FDIC insured, and not guaranteed by any bank. Guarantees are backed solely by the financial strength and claims-paying ability of the issuing insurer. Product features vary by insurer and state.
