If you’re looking for a retirement plan that can adapt to your retirement needs, you should consider an annuity. Typically, annuities have a minimum premium of $10,000 to get started. You may be thinking… I don’t have $10,000 sitting around to get started. Where can I get $10,000? Your 401k is a great place to start. You can roll over your IRA, 401(k), 403(b), or lump sum pension payment into an annuity tax-free. Annuities funded with an IRA or 401(k) rollover are "qualified" plans, enabling an insurance company to create an "IRA annuity", into which you can deposit your retirement funds directly.
Many financial advisors recommend annuities because your investment grows tax-deferred, meaning you pay no income tax on your gains until they are withdrawn. However, if your investment capital is already in a traditional 401(k) or IRA account, a rollover to an annuity offers no additional tax benefits but it does offer one major benefit, principle protection. What this means to you is that if the market does well you capture the gains up to your cap and if the market does bad, your principle investment is protected.
How is a 401k rollover possible? There is a choice on most 401(k) and other retirement plans that allow in service withdrawals as a rollover while continuing to participate in the plan. The rollover is penalty and tax free if you roll it to a personal annuity IRA.
When you turn 70 ½, you are required to take out a Required Minimum Distribution (RMD) on any retirement savings account (IRAs, 401(k)s, etc.). The money in your retirement account is pre-taxed with the understanding that you’ll start withdrawing at 70 ½. Why? Because the government wouldn’t let you get away without ever paying taxes on that money. So, once you turn 70 ½, those withdrawals must begin no later than April 1 of the following year.With an annuity, you have access to your money when you need. This is a great feature because life is full of uncertainties and unexpected events. An annuity, in most cases, will allow you to make withdrawals.