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Can You Transfer Money From an Annuity to an IRA?

Stan Haithcock
July 24, 2023
Can You Transfer Money From an Annuity to an IRA?

Stan The Annuity Man, America's annuity agent, with a burning question, "Can you transfer an annuity to an IRA?" I will answer it very quickly, and then I can dig down into the question. The answer's maybe. How about that?

Okay, I know you're mad at me because I answered the question with maybe. Can you transfer an annuity to an IRA? You can if the annuity is already inside of an IRA. You can transfer from one IRA to another IRA. And it's a non-taxable event. It's an institution to institution, transfer wire to wire, so it doesn't touch your hands, doesn't touch my hands, so it doesn't create any taxable event. Let's say you have a Multi-Year Guarantee Annuity or an Indexed Annuity inside a traditional IRA or some type of qualified account. You can choose to transfer that to an IRA.

Let's say you have an IRA at Schwab, of all places. You could say, "Okay, I'm going to transfer that over there, and it's a non-taxable event." Here's the maybe part, though. So, the reason I said maybe, is can you transfer an annuity, like in a non-IRA account, to an IRA?" The answer is no. You cannot do that. You cannot transfer a non-IRA asset to an IRA asset. Now a lot of people get confused about that. They go, "Wait a minute, wait a minute, Stan. The annuity, in a non-qualified account, grows tax-deferred, and in a traditional IRA, my gains grow tax-deferred. Shouldn't they be able to commingle or transfer from one to the other?" No. The short answer is no, you cannot do that.

Section 1035

Since we're talking about transferring, let's talk about transferring annuities in general because you need to know about that. The IRS has a rule called 1035, Section 1035. Section 1035 says, if you're so bored, you can read that. It says you can transfer from one annuity to another annuity, and it will be a non-taxable event. So, it doesn't create any taxes. Now, in a non-IRA setting, that's a 1035 transfer. If you have an IRA over here and an annuity inside of an IRA over here, you can transfer that annuity to that other IRA, IRA to IRA transfer.

What Can and Can't Transfer?

Now what can't transfer? There are some annuities that cannot transfer. Those annuities are the ones that are annuitized, like Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts. Those are annuitized, meaning you've already created payments. Annuitization, the word annua, is Latin for payment. You've already created payments. It's irrevocable. You're going to get paid those payments, but you can't transfer them at that point in time. Now, Multi-Year Guarantee Annuities, and Fixed Rate Annuities, can be transferred. If inside an IRA, they can go from IRA to IRA. They also can be transferred using the 1035 rule as well.

So, when you're transferring, remember this. Transferring involves going from structure to structure. If you have a Roth IRA, it can go from Roth IRA to Roth IRA, or it can go from traditional IRA to traditional IRA, or it can go from non-IRA to non-IRA. It's got to be the same to transfer. And all of those are non-taxable events.

Client Example

I got a call the other day, and the guy called, and he said, "Hey, I've got like seven annuities. I want to consolidate them all. I said, "Great, let's look at what you have." The tragic part is he bought them before he knew of Stan The Annuity man, which is tragic. But I'm here to help. I'm America's annuity agent. So, I said, "Email me the PDFs. Let's take a look."

Now the interesting part is he didn't even know where all these annuities were. He had some in non-IRAs and some in IRAs, and they're all over the board. I told him the rule. You can't transfer an annuity inside of a non-IRA to an IRA, which he thought he could. He wanted to combine them all. But what ended up happening is we could combine three of those annuities. We did consolidate it down to where he had all his annuities inside of an IRA in one IRA, and then he had all the non-qualified annuities outside of that. Remember those rules, and you can't just consolidate to consolidate. It's consolidating within the account structures.

So, you're asking yourself, "Stan The Annuity Man, how much can you talk about transferring annuities?" A lot. It's detailed. Here's another thing you need to know about transferring annuities. A lot of people own old annuities. Once an annuity agent finds out, most annuity agents find out that you have this old annuity, the first thing they try to do is transfer it to a new annuity so they can create a commission. That needs to be in your best interest, not their best interest. You need to make sure that you're not leaving benefits on the table with your old annuity to go to some new annuity.

Upfront Bonuses

One of the things I'm going to warn you about and listen closely, I'm going to get real close. It's about upfront bonuses. There's no philanthropist at annuity companies giving away money. Nobody wakes up in the morning and goes, "You know what? I really like America and Americans, and I like hardworking Americans," sounds like a politician, "And I'm just going to give away money." Nobody says that in the annuity industry. It doesn't happen. So, when someone says, "Hey, let's transfer your current annuity to a new one, you're going to get an upfront bonus for going." That is utter garbage.

Upfront bonuses are nothing more than contractual guarantees, the overall part of the contractual guarantee. And never, ever, ever, ever, ever, transfer an annuity from one to another and use the upfront "bonus money." That's monopoly money to make up for surrender charges. That is not kosher. I'm telling you right now that it is shady, and the person trying to do that, the agent, should lose their license for that recommendation. Period. End of story. So, when you go to transfer an annuity, let's say you've been pitched. "I want to take your Variable Annuity, and I want to transfer it to a Fixed Indexed Annuity because it's just fantastic." And you go, "Okay, let's hear it." Here's what has to happen during the application process. When you go from one annuity to another, you have to, in the application, side by side comparison, list all the benefits from the old annuity and all the benefits from the new annuity. And if you're not coming out better mathematically, not mathematically in the agent's favor, your favor, then you can't transfer. The annuity companies will not accept the transfer. And by the way, annuity companies, when you buy those annuities, they typically structure them, Variables and Index, so that when you buy it and when you attach a rider or something like that attached benefit, then it's really hard to transfer that. Income Riders, which are attached benefits to annuities for future income streams, those calculations, those numbers, do not transfer when you're transferring to another annuity.

Annuities Are Math

I know what you're saying. "Listen, Stan, I was only asking if you can transfer an annuity to an IRA, and now you're getting into all this other stuff." That's because you have to be aware that annuities are math. If it's in your favor mathematically to transfer from one annuity to another, you have to show it in the application. The carrier receiving the money from the old annuity has to approve it and ensure the application's filled out properly. And if it's in your best interest, then you do it. But if it's not in your best interest, you don't do it. And in most cases, you're better off staying where you are and figuring out how to maximize the benefits in your current policy.

Do You Even Need One?

I recommend you watch a video I've done, "Should I have an annuity in my portfolio?" This answers the question, "Do you even need one?" And there are some simple ways to even find out. Not everybody needs an annuity. Not every square peg fits into the round hole. We all know that.

Hey, do me a favor, and subscribe to my YouTube channel. I'm putting out these videos every Monday through Friday until infinity and until I hit the wall. Hopefully, I'm not going to hit the wall anytime soon. And do me another favor, go to my site if you need quotes or want to connect with one of us to discuss your specific situation and download my books. I have six owner's manuals that I've written. You can download all six for free and under no obligation. My goal is to educate you so you're making an informed decision on your terms and timeframe. And with that, I'll see you on the next blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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