There are many benefits that annuities provide for investors, including tax savings, predicable income growth, and flexibility to roll over into other accounts. If you have an annuity or several of them which were first offered from your employer you may be in the position where you need to switch providers. For example, let’s say you are changing jobs, or you simply would like to make a switch to an existing annuity provider to another for any reason, you can do so.
Let’s take a familiar example: You work for Company X who provides you the ability to contribute to your annuity through a particular company. You have decided to relocate and change jobs in a different state. Company Y offers you the opportunity to contribute to an annuity using yet another annuity company. There are certain benefits to switching. You may be able to continue contributing to your annuity and having it grow as you move further into your career and continue to receive the benefits of tax free growth.
The IRS rules allow you to make a switch, but you to do so there may be some things you have to do on your part so that at the end of the year, you can stay clear of the tax man. The first thing you want to make sure you do is not confuse your accounts by keeping a different account for those accounts you roll over. So if you were to switch providers, you would not simply divest the funds from the account and place them into new accounts with your provider. Think of it as keeping your pots separate even though you are moving into a different house. If you dump your funds in your pot into other pots that exist, this could lead to a bit of confusion when tax time comes. The confusion gets a bit worse if the money in the pot isn’t already tax deductable.
The next thing you want to be sure of is that you directly roll it over from one annuity provider to the next. Taking the money out of the pot and holding it in your pocket – even for a moment, could land you a nice penalty with the tax man. Instead, contact your annuity customer service tell them what you are planning to do and which company you are planning to switch to. They will have you sign some paperwork and should take care of everything for you. Doing directly this way allows you to avoid any penalties.
There are other types of roll over or exchanges that can occur on non-qualified annuities that you can take into rolling it over into another “non-qualified” annuity. These 1035 (IRS code) exchanges allow you to make the change and preserve your tax benefits. Again, you want to move your funds within these annuities from one company to the next directly – without you ever coming in the middle. This will provide you the ability to not pay taxes on the early withdrawal. Before continuing with a rollover, look up the latest fixed annuity rates to make sure you getting the best deal.
In addition the IRS rules allow you to exchange or rollover different types of annuities as you make the change. For example, let’s say you are with company X and have fixed annuities and moving to Company Y where you would like to switch to variable annuities.
Rolling over your annuities can be done easily and with careful planning does not have to incur a tax obligation, early withdrawal penalties, and high transfer fees.