Rolling part of a 401(k) into an annuity can turn savings into guaranteed income for life, which helps cover monthly bills in retirement. A direct rollover keeps the money tax-deferred. The trade-offs are less access to the money and possible surrender charges, so most retirees annuitize only a portion of their savings.
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Why roll a 401(k) into an annuity?
The main reason is guaranteed income. Combined with Social Security, annuity income can cover essential expenses so you are less dependent on market performance.
Some annuities also offer optional riders for lifetime income or death benefits.
How does a rollover work?
A direct rollover moves money from your 401(k) to an IRA annuity without taxes or penalties when done correctly. Avoid taking a check payable to yourself, which can trigger withholding.
Coordinate with your plan administrator and tax advisor before moving any money.
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Questions to ask before you roll over
How much income do you need each month, and how much should stay liquid for emergencies? What are the surrender period, fees and rider costs?
We compare annuity carriers and help you decide how much, if any, belongs in an annuity.
Frequently Asked Questions
Will I pay taxes on a 401(k) rollover to an annuity?
A properly done direct rollover to an IRA annuity is generally not taxable. Withdrawals later are taxed as income.
Can I roll over while still working?
Some plans allow in-service rollovers. Check with your plan administrator.
Should all my savings go into an annuity?
Usually not. Many retirees keep part of their savings liquid and invested.
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