Annuity Transfer: How Can I Transfer My Annuity?
Stan The Annuity Man here, America's annuity agent, licensed in all 50 states and that means yours. I represent pretty much every carrier on the planet and have the best calculators, period, so should that be the end of the blog? No, because we're talking about annuity transfers. Should you transfer your annuity? Can you transfer your annuity? "This person's trying to tell me to transfer my annuity." Can I transfer my annuity? How does my transfer work? All good questions asked by you of which will be answered by me.
So, annuity transfers. This is really a good topic, and I'm just the guy to talk about it because it's not cut and dry. It's not black and white or perfect, as you can only imagine in the world of annuities, because annuities are like herding cats. Nothing's uniform. The carriers are all different, even though the products are commodities, which is funny. They are, which means you should shop all carriers. Now, should you transfer annuities?
Some annuities are not transferable, meaning they're irrevocable, meaning you rip the knob off a water faucet and water flows out. In this case, you rip the knob off the income faucet, and income flows out. So, the annuities that are not transferable:
- Single Premium Immediate Annuities
- Deferred Income Annuities
- Qualified longevity annuity contracts.
Those are pure pension products. Those are pure lifetime income stream products, no moving parts and no annual fees. It's just a straight transfer risk, based on your life expectancy at the time you take the payment, but there's no liquidity. You can't transfer it. You can't say, "Well, I don't want to do it anymore; I want to transfer to this one." No, you'll get your money back in payment form, but you can't transfer it from one annuity to another.
The other thing about transferring you need to understand is what accounts. If you have an annuity inside a traditional IRA and we deem it appropriate, and in your best interest to transfer it, it will go from this IRA to this IRA. So, IRA to IRA, a non-taxable event, will not create any taxes. So, if you have an annuity outside of an IRA and a cash-type account that's covered by the IRS code, yes, Stan The Annuity Man, knows the IRS code. Code 1035.
If you have no life at all, you're not dating anybody, your spouse has left you, kids don't talk to you, and you have nothing to do, pull out the IRS code and read 1035. And 1035 says you can transfer from this annuity to this annuity and it's a non-taxable event. When you hear 1035 transfer, that's what that means. So, the non-taxable event doesn't trigger any taxes.
But that's the broader scope of it. That's the 30,000-foot view. Yes, you can transfer. The bigger question is should you transfer? Does it make sense mathematically to transfer? Why is everyone trying to transfer this annuity?
Most annuities that are transferable fall into three types:
- Variable Annuities
- Fixed Indexed Annuities
- Multi-Year Guarantee Annuities.
All of those are what's called Deferred Annuities. So, the principal is here, and you're deferring paying taxes on the gains. Should you transfer those? Maybe. Now the good news is the annuity industry is trying to protect you from the sociopaths and grifters that proliferate any sales environment, including the annuity industry. The annuity industry doesn't have any more grifters and sociopaths than any other sales environment, but they're everywhere. You're going to run across them. Especially in a commission world.
But how does the annuity industry protect you? Give you an example. Guy called in the other day and said, "I have this Fixed Index Annuity that I want to transfer to a Multi-Year Guarantee Annuity." Okay. So, he is going from a Fixed Index to a Multi-Year Guarantee Annuity. He just didn't understand; it just wasn't sold right. He thought he bought something he didn't. There wasn't anything wrong with the product; it was something wrong with the sales pitch, which happens often.
What we said to him is, "Okay, let us take a look at your last statement, and then we're going to have to run a side-by-side comparison by law, the annuity industry makes us do this, thank goodness, to see if the annuity that you're leaving has more benefits than the annuity that you're going to." In other words, the annuity you're going to transfer has to be mathematically in your favor, contractually, and not in the agent's favor. They call it twisting, churning, whatever, flipping, going from one annuity to another. The annuity industry hates that unless it's in your favor, period.
Even in the application process, if you said, "I don't care what you say Stan The Annuity Man, I want to do it. I don't care if you tell me it doesn't make sense; I want to do it." Even if you convinced us to do the paperwork, we still have to do a side-by-side comparison inside that application to ensure that the annuity you're leaving and the annuity you're going to make sense for you. You're getting more benefits going to the other one.
That's a Handcuff
Now here's the ugly little secret. When companies offer Income Riders or tax riders to a Deferred Annuity, that's actually a handcuff, meaning that when you transfer your annuity, you're not transferring that Income Rider benefit; you're transferring the accumulation benefit.
When you transfer, or try to transfer, you're transferring the accumulation. So, this income benefit side doesn't transfer; typically, that's higher than the accumulation. If you transfer, you will leave that benefit on the table.
Now, that's smart business if you're an annuity company because you're trying to keep the person there, the policyholder there, and the only way to access that benefit and take advantage of that higher number is to stay. It might not make sense in a transfer, and the annuity companies will not accept the transfer if that side-by-side comparison is not in your contractual favor. You didn't know that did you? You thought the annuity industry was just the wild, wild west. No one cares. They just want a commission. No, no, no. The carriers and the industry are trying like heck to protect the consumer from the bad apples out there that are trying to flip and all this other stuff.
Now, one more thing, and I know I've thrown you a lot, I'm going to cover a couple more important items. If anyone, let me say it again, if anyone ever tells you to transfer an annuity because the annuity you're going to is offering an upfront bonus, I need you to get up and walk out of that office or hang the phone up. Never, ever, ever, ever move an annuity from one annuity to another because they say the bonus will, say, make up for the surrender charges you have to come out of the annuity. Never do that. The industry hates that and they should hate that because the bonus money is typically not real money. It's vested money.
If you think there's a person, an annuity company, that wakes up in the morning and goes, "You know what? I'm going to give a bonus away to everybody who signs the contract, and it's free money, and we're just going to do that because that's who we are," you're the roob at the table. You're dumber than a box of hair. It doesn't exist. You know that instinctually. So, if that agent's trying to flip you from one annuity to another and justifying that transaction because the surrender charges you'll pay over here, it'll be made up by the bonus, that's garbage. It should never happen.
In fact, if you have to take surrender charges from an annuity to transfer to another annuity, I'm saying, and I've been doing this for a long time, I'm America's annuity agent. I'm the number one cat out here. I know this stuff backwards and forward. 98% of the time, it does not make sense to take surrender charges and get out of an annuity to another. There are just asteroid things, maybe one out of a hundred, that will run the number and say, "Yeah, actually mathematically it makes sense," and will make the case to the receiving carrier that here's the math, that it makes sense for this person to do that. But if anyone's telling you to take surrender charges or pay a penalty to move from one annuity to another, 98% of the time, it's sales, sociopathic, grifter nonsense, period.
So, the question then comes back to the original, should I transfer my annuity? Some of them you can't. Single Premium Immediate Annuities, Deferred Income Annuities, and QLACs, you can't. They're irrevocable income stream products. But for the others, Variables, Fixed Index Annuities, and Multi-Year Guarantee annuities, it comes down to the math. It comes down to whether it makes sense for you mathematically to go from one contract to the other. And 98% of the time it does not.
Where it makes sense, if you're moving from one Multi-Year Guarantee Annuity, Fixed Rate Annuity, to another, you're going from CD to CD. You're going from fixed rate to fixed rate. You're going from apples to apples. But Indexed Annuity to Indexed Annuity, if that Indexed Annuity has an Income Rider attached to it, you most likely won't be able to transfer.
I know I got passionate about that. I'm really not that angry, but I do get angry when I see bad things happening in the annuity industry. A lot of it happens in this transfer world. I did a video called, What is a 1035 Transfer, where I went into that IRS code and how it works, etc. It might be a good video to watch after this blog.
I encourage you to go to The Annuity Man to use our annuity calculators, the best calculators on the planet, and I represent almost every carrier out there, more than anybody. And if you're a carrier that I don't represent, call me. We want to know everybody out there. We've got most of them covered. But you can also go there and read more of my blogs. Thank you for joining me today, and I'll see you on the next Stan the Annuity Man blog.
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