Move Your Money with No Immediate Tax Concequences

If you have a large lump sum invested in another annuity, you can generally transfer your money into a fixed annuity without incurring any current tax liability.

Moving money in this way can be relatively easy to accomplish. Here's what you need to know.

Moving From One Annuity to Another
You can transfer funds from one annuity contract to another using what is known as a "1035 exchange" (named for the section of the Internal Revenue Code that covers such transactions). These rules generally relate to exchanges from one traditional annuity to another.

A few basic rules apply to qualify for a tax-free 1035 exchange, including:

• The existing annuity contract issued by one insurer must be assigned, prior to maturity of the contract, to the insurer providing the new contract.
• Both contracts must be payable to the same person or persons
• The cost basis of the new annuity (the initial value of the investment, above which any earnings are considered a taxable gain at the time of withdrawal) will generally be the same as the cost basis of the old annuity.

Lump-Sum Rollovers
Money held in a workplace retirement plan or another IRA can be rolled into an IRA fixed annuity. A rollover can occur without creating current tax liability.

Most important, the assets being rolled over must move directly from one financial institution to another. If the money is sent directly to you from a qualified plan (e.g. Section 401(k) plan or Section 403(b)) before being rolled into an IRA, an automatic withholding of 20% of the account value will be applied, reducing the value of your account. If you take receipt of the money and it does not go directly to an institution, you still have 60 days to roll the full value of your original account into an IRA, but the withholding still applies.

To avoid tax consequences, assets being rolled over must move directly from one financial institution to another.

Also keep in mind that a rollover IRA can be established with funds from the retirement plan of a company you are leaving. If, at a later time, you participate in a plan with a different employer, the assets from the newly-created IRA can be moved into the workplace retirement plan. This assumes that no other contributions were made to this IRA outside of the rollover from the original employer's plan.

For a more thorough understanding of tax implications, be sure to speak with your tax advisor.

Content is for informational purposes only and may not accurately reflect your specific situation. Information is not intended to provide financial, legal, tax, or accounting advice. You should consult a qualified advisor for advice specific to your own circumstances.