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J.White, CPA

401k-IRA Rollovers/Annuities

When you leave your job for a new one, or retire, you have a one-time opportunity to take the money from your 401k account and transfer it into a better investment vehicle, like investments with more flexible investment options, safeguards against losing your principle, and income protection for your retirement years.  I firmly believe that consumers changing jobs should at least look into the opportunity to transfer their investment dollars out of 401k plans, and into more flexible plans such as annuities. Rolling your 401k into an annuity gives you a continued tax shelter, while still giving you a huge range of investment options, guarantee of principle, and living and death benefits that can protect you and or your family whether the stock market goes up or down and regardless of whether you live or die.

If you choose to roll you 401k into an IRA annuity there are two primary types, Immediate and Deferred. With an Immediate Single-Life Annuity, you will receive one check per month for the rest of your life, no matter how long you live. The amount of this monthly check is determined by the size of your account, the interest rates at that time, and your life expectancy.  With an immediate annuity you are giving up control of your principal and therefore it is important to understand that you are giving up all of your money in exchange for a series of payments. With a Deferred Annuity you maintain control of your principal, and can receive guaranteed payments while benefiting from potential upside in the stock market. This is accomplished through the purchase of additional riders that will guarantee at a minimum a 5-7% worst-case return on your money, but if the market does better, you are guaranteed the higher return and can lock in your new higher principal value to increase your income.

Always check with your company prior to making a rollover to see if they offer a payout that is higher than you could get from insurance companies.  Once you roll over your 401k, you can’t roll it back.   If your employer does not offer to annuitize your 401k, you can take a lump sum payout from your 401k and use the funds to purchase an annuity contract.  Just be sure and do so within 60 days of the 401k distribution to avoid any taxes, and be sure the check is made out to the new custodian FBO (for benefit of) you, so that the IRS will not deduct 20%.