Q. Can I rollover my IRA or 401k into an annuity and avoid paying taxes?

A. YES.    An annuity which receives an IRA or 401k transfer is considered a "qualified" plan.

When you apply for an insurance company annuity with pre-tax money, the insurer creates an "IRA Annuity" account into which your money is transferred directly.

 You can directly transfer your pension lump sum or IRA into an annuity without adverse tax consequences. Your employer can roll over your 401k into an annuity without having to withhold any taxes.

There is no mandatory withholding requirement if your funds are rolled over directly into an annuity within 60 days.

 Q.  Into what types of annuities can I roll over my IRA or 401k?

A.   Depending on what you're trying to accomplish with the annuity, you can roll over your IRA or 401k into any of these 3 types of an annuity:

• IRA - Fixed Deferred annuity - A fixed-rate annuity in which the interest rate guarantee period matches the surrender penalty period. 100% Principle Guaranteed.

In other words, if you buy a five-year annuity you're guaranteed to get the stated interest rate for all five years if you hold the contract for five years. This is a tax deferred account and you do not pay taxes each year, unless you'll withdraw.

• IRA - Equity Indexed Annuity - Is a Fixed Deferred annuity which offers a stock market-driven investment with potentially attractive returns and a guaranteed minimum return. 100% Principle guaranteed.

There are several indexing methods used to determine account values, each with its own variations and benefits. Here you can find rates of Indexed annuities.

• Immediate income Annuity - An immediate annuity begins making regular monthly payments to you shortly after you deposit your money with the insurance company.

The rates quoted for an immediate annuity are in a different format than the interest rates shown for a deferred annuity. The reason for this is that your immediate annuity rate is influenced by your age, gender, and choice of payment options, all factors which have no bearing on a deferred annuity rate.

Q. If I roll over my IRA or pension lump sum into an "immediate" pay annuity will it be considered a taxable distribution?

A. NO. Normally a pension distribution is taxable, but federal law permits you to roll over your accounts into an immediate income annuity without paying tax. You pay taxes on the monthly income you receive from the immediate annuity.

 Q. How can I "lock in" the IRA annuity rate before my money is received by the insurance company?

A. Many insurance companies offer "rate hold" protection. Your quoted rate is held for one to three months during the time the money transfer takes place. The rate hold period usually begins the day the insurer receives your completed application and accompanying forms.

 Q. My money is in a 401k account with my old employer. How do I roll it over to the IRA?

A. You'll need to contact your HR department about the procedures they have for releasing your money. Many employers require their own forms to be completed before they release your funds. These companies will process a transfer request which is initiated only by you. We can help you with the paperwork.

You can rollover your old 401k to IRA annuity without having to withold any taxes.

Q. My employer sent me my pension lump sum distribution. His check was made payable to me not to the insurance company. How do I avoid paying taxes on this distribution?

A. You must roll over the money into a IRA annuity within 60 days to avoid taxes. If the money is not in an annuity within the allotted 60 days you will owe taxes on the full distribution. Many insurance companies will accept a check made payable to you which you endorse over to the insurance company.

Q. What tax penalty applies if I am not yet 59 ½ years old?

A. In general terms, if you would like to take withdrawals from an IRA or 401k and you are not yet 59 ½ you can avoid the 10% federal penalty tax in one of three ways:

1. You can transfer your IRA or 401k to IRA annuity within 60 days.

2. You could transfer your IRA or 401k to an insurance company Immediate annuity which offers a "life contingent" payment option. In simple terms, as long as your annuity is set up to pay you over your lifetime (or jointly, over your and your spouse's lifetimes) no tax penalty will apply. (Be careful not to select an annuity for a specified number of years (a so-called "period certain" or "term certain" annuity) which is SHORTER than the number of years in your life expectancy -- a 10% tax penalty IS LIKELY TO apply.) 

3. An alternative method is to withdraw amounts which are calculated not to exceed the level determined using the IRS 72t or 72q rules.

Disclaimer: You are advised to consult with your own legal and tax professionals before making any decisions related to the purchase of this annuity.