Why roll over a 401(k) into an annuity

Many American workers have assets in one or more employer-sponsored retirement plans (i.e., 401(k), 403(b), profit-sharing plans) to help save for the future. But what happens if you change jobs? Oftentimes, these accounts don’t come with you, so they are set aside to deal with later – in fact, an estimated 1 in 5 U.S. workers have left behind or forgotten retirement accounts.

While the funds in the account still have the potential to grow, they’re usually considered inactive if you’re no longer employed by the company. And if you experience several job changes throughout your career, you could find yourself trying to keep track of several accounts. This could make it difficult to know if you’re on track with your retirement savings goals and ensuring you’ll have enough income down the road. One option to help you stay in the driver’s seat is to roll over your non-contributing 401(k) into a fixed indexed annuity (FIA).

Benefits of an annuity

When you make contributions to a 401(k), you will not owe taxes on these funds or any earnings in the account until you withdraw the money. A FIA can also provide tax deferral and growth potential, along with insurance against the risk that you’ll outlive your money after you retire. They give you the potential to grow your retirement savings, help manage the risk of loss due to market downturns and can create a guaranteed income stream for the rest of your life.

A fixed indexed annuity can provide the added benefits of:

• Protection from loss due to market downturns
• Guaranteed lifetime income¹
• Flexibility to customize income
• Creating a legacy

Rolling over tax-qualified retirement assets into an annuity can help you achieve your retirement goals, while also providing you with additional features for creating a well-rounded financial plan. Let’s take a closer look at each of these benefits.

Growth potential

A fixed indexed annuity has the potential to grow your money while also helping manage the risk of loss. It offers growth potential based, in part, on the upward movement of an external market index.² 

Continued tax deferral

Rolling over your 401(k) is tax free as long as you follow IRS guidelines. You won’t pay taxes on any growth in your annuity until you’re ready to withdraw money, typically when you reach retirement.³

Protection from market downturns

Since a FIA does not directly participate in any stock or equity investments, your principal is protected from loss due to market downturns. Although you may earn zero percent interest in any given term period, you’ll never earn less than zero. In exchange for this protection, indexed crediting strategies limit the interest you can receive, which may include a Cap Rate, an Annual Spread, and/or a Participation Rate.

Guaranteed lifetime income

Living a long life in retirement can certainly be a blessing, but it can also be a challenge to ensure you have enough income to go the distance. An annuity can create a guaranteed stream of income in retirement and supplement income from Social Security, retirement plans and other savings vehicles. If you choose a FIA, it may include or offer optional riders that provide lifetime income, so you can be protected from outliving your savings and can gain greater peace of mind about your future financial well-being.

Flexibility

Along with guaranteed lifetime withdrawals, a FIA may have an income rider that offers additional benefits, such as inflation protection, a death benefit or living benefits for confinement or terminal illness.⁴ You also typically have access to a least a portion of your money without incurring a Withdrawal Charge.

Legacy for your loved ones

With an annuity, you can provide your loved ones with a source of funds in the event of your death. The person you name as your beneficiary can receive your annuity’s full Accumulated Value or Minimum Guaranteed Contract Value, whichever is greater.⁴

Meeting your retirement savings goals

According to a nationwide poll conducted by Athene in partnership with Kiplinger’s Personal Finance magazine, people who have income from an annuity are more likely to express confidence about their financial future. To better reach your long-term savings goals and create financial security for the years ahead, building a retirement income plan can be essential. Talking to your financial professional can help you discover your retirement personality and determine if rolling over a non-contributing 401(k) into an annuity is the right choice for you.

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¹Lifetime Income Withdrawals may be reduced or may stop if you take Excess Withdrawals from your contract. If Excess Withdrawals, Withdrawal Charges, or applicable adjustments reduce the contract’s Accumulated Value to zero, your Lifetime Income Withdrawal Payments will stop and the rider will terminate.

²Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market Indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets. Clients who purchase indexed annuities are not directly investing in a stock market index.

³Under current tax law, the Internal Revenue Code already provides tax deferral to qualified money, so there is no additional tax benefit obtained by funding an IRA with an annuity. Consider the other benefits provided by an annuity, such as lifetime income and a Death Benefit.

⁴An annuity is not the same as long-term care insurance and is not a substitute for such coverage, nor should it be sold as such.