A very common question that I get from people who have never put money into an annuity or aren’t that familiar with them is “How do I get the money from my current account, into the annuity?”
So here are the 3 most common ways that people fund a new annuity contract
- Write a check
- Do an account transfer
- Transfer an old annuity into a new one
Write a Check
This is the easiest way to fund an annuity.
Maybe you had a bank CD mature and you want to put the money into a fixed annuity to earn a higher rate.
Talk with your bank and have them transfer the money to your checking account. Unfortunately, the bank tellers will often try to pressure you into seeing their investment person to try and keep your money at their bank. Just politely tell them to get it done for you.
Then just write a check made payable to the Insurance Company where you are opening the annuity account.
NEVER: Make the check payable to the agent, or an agency. Always make it payable to the issuing insurance company.
Let’s say you have an IRA or a 401k and you have decided that you want to move the account into an annuity for the safety and guarantees.
How do you get your IRA over to the annuity company?
Typically you would want to do what’s called a “Custodian to Custodian Transfer”.
Within the annuity application there is a form called “Request For Funds”. You will need to write in the name, address and account number of the institution where your money is held currently.
Sometimes a signature guarantee is also needed. If that’s the case, you can usually just submit a copy of your driver’s license and it will get taken care of.
This “Request For Funds” form gets submitted to the annuity company along with your application.
On it you can specify if you want the entire account transferred, or just a portion of it.
Once these forms are submitted then the back offices take care of everything from there. The amount is you specified is automatically transferred from your IRA or 401k right into the new annuity contract.
It’s really pretty simple. You just need to make sure you fill out the form properly.
IMPORTANT NOTE: In some cases 401k or Pension accounts at your employer will not do an account transfer. They will only issue you a check.
Ideally, the wording on the check should be something like this. (Your new IRA custodian will give you the exact wording)
- Check payable to : “ABC IRA Company, FBO: (Your Name) / (IRA account number)
The worst option to do a rollover/transfer is to have the 401k/pension company issue you a check payable to you, in your name. This can still work, but you only have 60 days to get the check deposited into an IRA Rollover account and there may be some tax withholding. Plus, if you don’t do things correctly and on time, the TAX MAN will come and you will owe taxes on the entire distribution.
Annuity to Annuity Transfer
Maybe you have an old annuity that is renewing at really low rate, or maybe you like the new “Hybrid” Annuities with the Income Riders and your old annuity does not have that feature.
You can do what’s called a 1035 Tax Free Exchange.
This means you can transfer from one annuity company to another, and you do NOT have to pay any taxes.
The thing to watch out for though, is make sure there aren’t any surrender charges on your existing annuity. If there are any remaining surrender charges, you really need to think about if it’s worth transferring and paying the penalty, or just keeping it where it’s at.
If you are out of your surrender charger period, then you can do the 1035 exchange at any time, with no penalties.
Hope this was helpful.
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