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Frequently Asked Questions
What are the benefits of rolling a 403(b) into an annuity?
Rolling a 403(b) into an annuity can provide a steady income stream in retirement, potentially with a fixed rate of return that can offer financial stability. Annuities also offer tax-deferred growth, allowing the money to grow without being taxed until it is withdrawn.
Are there any penalties for rolling over a 403(b) to an annuity?
Typically, if the rollover is performed as a direct transfer from the 403(b) to an annuity (qualified plan), there are no immediate tax penalties. However, it's important to execute the rollover correctly to avoid potential taxes and penalties for early withdrawal.
How does the rollover process work?
The rollover generally involves coordinating with the 403(b) plan administrator and the financial institution offering the annuity to transfer funds directly. This can help avoid mandatory withholding taxes that apply if the rollover is not direct.
Can I roll over my entire 403(b) balance into an annuity?
Yes, you can typically roll over the entire balance of your 403(b) into an annuity. However, it’s important to review your current 403(b) for any restrictions or benefits that may be lost upon rollover.
What types of annuities can I consider for a rollover?
You can choose from different types of annuities, including fixed annuities, which provide a guaranteed payout, or variable annuities, which offer payments based on the performance of the underlying investments. Fixed indexed annuities are also an option, offering a blend of fixed and performance-based returns.
What happens to my 403(b) contributions and earnings when I roll them into an annuity?
Your contributions and any earnings will continue to grow tax-deferred in the annuity until you start making withdrawals, at which point they will be taxed as ordinary income.
Are there any tax implications I should be aware of when rolling over a 403(b) to an annuity?
The rollover itself is typically tax-free if done properly as a direct transfer. However, withdrawals from the annuity will be taxed as ordinary income, and if made before age 59½, may be subject to an additional 10% early withdrawal penalty unless an exception applies.
Can I still contribute to an annuity like I did with my 403(b)?
Once your 403(b) funds are rolled into an annuity, further contributions would depend on the terms of the annuity. Some annuities allow additional contributions, while others do not.
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