How to Transfer an Annuity Into an IRA

An annuity and an IRA are both vehicles that investors can use to save for retirement. Both are given tax-deferred status by the IRS so long as account holders follow the regulations for contributions and distributions of the accounts. It can be confusing for investors who may not realize that an annuity can be a qualified plan, which means that it is a designated IRA annuity. Annuities don't need to be qualified, nor do IRAs need to be invested in annuities exclusively. A person can invest in savings, equities, bonds or mutual funds with his IRA. You can transfer your annuity into a self-directed IRA if it is qualified.

Call your annuity provider. The customer service number should be on the contract or statement, or visit the agent who sold you the policy. Ask whether the annuity is qualified or non-qualified. If it is qualified, continue to Step 2. If it is non-qualified, you cannot transfer the annuity into an IRA.

Talk to a financial adviser about other options for a self-directed IRA. You may want to move the assets because you are displeased with the performance of the entire portfolio. If this is a variable annuity that has stock market mutual fund sub-accounts, you may want to consider re-balancing the portfolio within the annuity prior to completing a transfer if the other sub-accounts meet your investment objectives.

Consider the fees associated with the annuity versus a self-directed IRA and the investments you would consider in it. This is important since variable annuities are criticized for charging higher fees for management of assets that can be bought with lower fees in a self-directed IRA. If you are transferring assets merely out of fear of fees but are happy with the performance of the assets, consider whether you would be moving into a new fee structure and what the management fees are in the self-directed IRA. It's worth closely examining things to make sure you are getting the investments you want without high fees since custodial accounts also have fees. Double check things to make sure you aren't being sold on hype or fear.

Fill out a new account form with the new IRA custodian--if you do choose to transfer the account. Be sure that your name, address and all identifying information match your existing account to expedite the process. A transfer form should be part of this paperwork that lists the account/policy number and estimated balance that should be transferred.

Sign the paperwork and submit it for processing. Submitting may mean handing it in to the new adviser for processing or sending the paperwork into the address indicated on the paperwork if you are working from an online custodian. Be sure to keep a copy for yourself.

Follow up in a week to make sure all the paperwork was submitted in good order. Allow up to eight weeks to have the transfer complete. You may want to call the old annuity policy to check the status. Expect your previous advisers to attempt to preserve the account when you call--this is one benefit of having a new adviser deal with them.

Review the assets that transferred to confirm that everything that was supposed to move over did.

Tips

  • Ask your new adviser what types of IRA fees and management fees are associated with your new IRA. Check to make sure you understand whether you are paying a front-load, back-loaded or no-load fund or other fees associated with the new IRA. This information may not deter you from wanting to transfer the assets, but you may decide to find someone less expensive in the process.