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If you’re considering rolling your 401(k) into an annuity, you should follow these best practices to optimize your finances.
A. Understand Annuity Types
Annuities is not a one size fits all product. Annuity comes in fixed, fixed indexed and variable annuity products. Fixed annuities usually earn a low-interest rate. However, fixed annuities can guarantee payments for life and won’t suffer capital losses. On the other hand, fixed-indexed and variable annuities have higher earnings because they are tied to gains, stocks, and other S&P 500 investment products.
In addition, financial research shows that annuities might cap gains when the stock market does well or lose value when it dips. However, annuities are designed to have a floor or bottom, thus, protecting the contract owner from loss and guaranteeing zero loss. Therefore, the 401k’s are more volatile and usually aren’t eligible for 401(k) rollovers. So, going with fixed is the most reliable option.
B. Postpone Payments to Increase Income
Like Social Security, your annuity payments usually increase if you delay taking them. For instance, if you buy a $1 million annuity at 55 and wait five years for payment options, you will create an annual income of about $90,000. However, buying the same annuity and waiting 20 years for your first payment will increase your annual income to over $200,000. That is why it is important to learn about annuities, 401k’s, and other financial products before you reach 55 years old.
C. Don’t Overfund the Annuity
All the annuities, including 401k contracts, have specific funding thresholds before providing distributions. For example, let’s say your annuity might require $500,000 before you can withdraw payments. So, let’s also say that you leave your job at age 50 with $250,000 in your 401(k). You’ve also been contributing to a $500,000 annuity throughout your career. Now, you suddenly notice that your annuity account has $450,000, meaning you need $50,000 more to fund it fully. You can rollover the $50,000 from your 401(k) and keep the rest in the account. This option will fulfill your annuity contract and other conditions with IRS and the government.
D. The Annuity Bottom Line
Rolling over a 401(k) is usually a straightforward process in which your planning manager and new employer handles the cash involved. Or your financial producer or licensed insurance agent can help you to rollover your 401k into an annuity account. However, if you did not know, you have 60 days to get it into a new investment account without incurring tax consequences. 401(k)'s to Annuities are excellent options for rolling over if you aren’t getting another 401(k) and you are not employed by the company holding the 401(k) Contract. In general, it is important to know that Annuities offer guaranteed payments throughout the rest of your life. Overall, it’s best to have a thorough plan before initiating a rollover to avoid consequences and poor financial planning outcomes.
Conclusion:
The best practices used to rollover 401k into an Annuity account is to hire or retain a financial advisor so they can help you make the best rollover choices. Finding a financial advisor does not have to be painful or hard, in general. The main thing is to get somebody who you feel comfortable with and trusts. If you’re ready to find an honest financial advisor who can help you achieve your financial goals, please give us a call here at Act Now Insurances. We have discussed in previous articles about how you can delay your Social Security payments and increase your retirement payments. However, the importance of financial planning, 401k rollovers and annuity products are major insurance conversions sought by Americans today.
Billy Earley, MA, PA, AA, BS.
Financial Marketing Team
Insurance Producer
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