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Rolling into an annuity UPDATE 6 11 2023

Can I Make More Money If I Roll Over My 401(k) Into An Annuity?

YES NATIONWIDE INCOME WITH BONUS CAN PAY NORTH OF 10% A YEAR

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Ashley Kilroy

Sat, June 10, 2023 at 6:00 AM PDT

When you leave a job where you had a 401(k) it’s important to understand what your options are for rolling over your tax-advantaged plan. Cashing out is another option but can result in significant taxes. Many choose to roll their money into a new 401(k) or an IRA, but an annuity is also a viable option. Here’s why an annuity may be ideal for your 401(k) rollover and how to conduct the process.

For more help with a 401(k) rollover, consider working with a financial advisor.

401(k) Rollover Definition

A 401(k) rollover is when you transfer the money from a 401(k) to another retirement savings account. Doing so allows you to simplify your retirement savings plan in different situations. For example, if you find a new job or retire, you can bring your old 401(k) with you and deposit your money into your new employer’s plan.

On the other hand, you might leave a job for another that doesn’t offer a 401(k). In this case, you might roll over your funds into an individual retirement account (IRA) or an annuity. Similarly, if you find a retirement savings vehicle with better returns than your 401(k), a rollover is also an option.

There are two ways to roll over your 401(k): direct and indirect. With a direct rollover, you provide your new retirement account information to the manager of your current plan. Then, the manager sends the funds to your new account.

Conversely, an indirect rollover means liquidating your account. You’ll receive a check in the mail and must deposit the funds into a new account within 60 days or pay income taxes plus a 10% early withdrawal penalty if you’re under age 59.5 (or 55 if you’re retired). That said you can pocket a portion of the cash and pay the taxes due or keep some of the money if you’re strapped.

How to Roll Your 401(k) Into an Annuity

Putting your 401(k) money into an annuity is another option. An annuity is a contract guaranteeing payments for a specified period of time. Insurance companies accept 401(k) rollovers to fund annuities. Here’s how to handle it:

Make a Plan

It’s recommended to discuss your rollover ideas with a professional. A financial advisor will help you find the best annuity for your unique situation. In addition, they can oversee the rollover to ensure everything is correct.

Choose an Annuity

As with any financial decision, it’s best to shop around. Talk to multiple annuity companies and get the details on each offer. Then, you can compare each plan’s structure and fees. In addition, you can check how financially stable each company is and choose one that gives you confidence.

Communicate with Your Chosen Company

Once you make your pick, communicate with the annuity company. Let them know you want to purchase a contract and roll over funds from another retirement plan. Your financial advisor can also facilitate this communication.

Send Instructions to Your Plan Administrator

Once you’ve acquired the annuity and filled out the necessary paperwork, instruct your 401(k) administrator to execute the rollover. A direct transfer is the easiest way to complete the process.

How Long Does It Take To Roll Over a 401(K)?

401(k) rollovers take varying amounts of time, depending on your situation. Because the process involves multiple parties (namely, you, your old plan administrator, and your new plan administrator), it usually takes several weeks to finish.

In addition, your 401(k) type can impede the rollover. Specifically, traditional 401(k)s often take two to three weeks to roll over, while Roth accounts take longer because they have unique requirements and tax implications.

Remember, you’ll face penalties and taxes if you don’t roll over your funds within 60 days. Therefore, it’s best to stay on top of the process by frequently communicating with all relevant parties and creating a detailed plan before initiating the rollover.

Reasons to Roll Your 401(k) Into an Annuity

401k rollover to annuity

Although you can roll your 401(k) into numerous account types, an annuity offers specific advantages, including:

Reliable Income

An annuity provides steady income regardless of economic changes and stock market performance. For example, a $1 million annuity can provide about $70,000 of annual income until you pass away. On the other hand, $1 million in a 401(k) or IRA will last as long as the account produces investment income and your withdrawals don’t drain the fund.

For instance, say you expect $70,000 of annual income from your retirement plan, but stock market volatility causes your portfolio to dip by 20%. Your $1 million nest egg would shrink to $800,000 overnight, and you would withdraw an additional $70,000 for that year’s expenses, leaving you with $730,000 in your account. If the economy continues struggling, you might drain your account within several years, leaving you without an income stream. An annuity avoids this possibility because your income doesn’t depend on the stock market – it comes from the company holding your policy.

Sidestep Longevity Complications

Likewise, a 401(k) can run out of funds if you live long enough. For instance, you might plan to live for 30 years after retiring at 62. However, if you’re going strong at 90, there’s a solid chance your retirement account can’t keep up with the cost of living. In this scenario, you could run out of money even if you maintain the same lifestyle for longer than you intended your account to last. With an annuity, you’ll continue receiving payments year after year, no matter how long you live.

Longer Deferral Option

Current legislation mandates that you take required minimum distributions (RMDs) from 401(k)s, 403(b)s, and IRAs by age 72 (or 73 if you turn 72 in 2023). Otherwise, you’ll owe a 50% excise tax on uncollected distributions. Roth accounts are exempt from this rule because the government has already taken taxes out of your distributions.

Fortunately, you can delay RMDs until 85 with annuities. For example, say you have a Roth IRA with $500,000, a $1 million annuity, and Social Security income. You receive $5,000 monthly between your Roth IRA and Social Security checks and currently don’t need your annuity income. In addition, adding more than a few hundred dollars to your current income will raise your Medicare annual premium by thousands. Therefore, you can delay or reduce your annuity withdrawals to minimize your tax burden and avoid unwanted financial implications.

Tailor Your Plan

Traditional retirement plans usually have cut-and-dried structures. However, annuities offer modifications (known as riders) to suit your situation. For example, you can preempt inflation with an inflation adjustment rider that raises your income by a small percentage each year.

401(k) Rollover Rules

Here are essential rules to keep in mind as you manage your rollover:

You have 60 days to deposit the money into a new retirement account if you conduct an indirect rollover. Otherwise, you’ll incur steep financial penalties.
If you roll a 401(k) into an IRA, you can’t make a rollover from the IRA into yet another account until a year elapses.
Your 401(k) rollover doesn’t count toward traditional IRA contribution limits. However, it will count toward your modified adjusted gross income, which can reduce your Roth IRA contribution limit.
You can roll over a portion of your 401(k) and take the remainder as a payout. However, your payout is subject to income taxes. Plus, if you’re younger than 59.5, you’ll pay a 10% early withdrawal penalty. This age limit is reduced to 55 if you’re retired.
You typically can retain your 401(k) even if you leave your old job. This option might be best if your new job doesn’t offer a retirement plan.
If your 401(k) has less than $5,000 and you leave your job, you must instruct your plan administrator to keep your plan going. Otherwise, they might liquidate your account or roll it into an IRA without your approval.
If your 401(k) has less than $1,000, your administrator will liquidate your account and send you a check.
Keeping company stock in the original 401(k) is best. If you roll it over, you’ll be liable for net unrealized appreciation Holding the stock in the same 401(k) will help you receive optimal value from the stock when you decide to liquidate it.

Risks of Rolling Your 401(k) Into an Annuity

Annuities can be profitable options for your rollover, but they have specific drawbacks:

Annuities can have high fees, especially if you add multiple riders.
Annuities have what’s called an annuitization phase during which withdrawals are penalized. So, you usually must wait at least seven years before moving money out of the account. Otherwise, you’ll pay surrender charges.
An annuity generally won’t pay a death benefit to your beneficiary if you don’t have a specific rider. Generally, the insurance company absorbs the money in your account upon your death.
Annuities usually have lower growth rates than other investment accounts. Therefore, an annuity will likely take longer to reach a $1 million balance than a stock portfolio.

Rollover Tax Consequences

401k rollover to annuity

The average 401(k) rollover doesn’t have tax consequences. For example, when you conduct a direct rollover after starting a new job, you don’t touch the funds at any point. Instead, plan administrators handle the transfer, and the IRS isn’t involved.

On the other hand, you have 60 days with indirect rollover before tax implications occur. Specifically, if you don’t finish the rollover within this time limit, the government considers the money received as a withdrawal and will charge income taxes accordingly. In addition, you’ll pay early withdrawal penalties if you’re under age 59.5 and still working or under 55 and retired.

Because indirect rollovers don’t always go as planned, the IRS withholds 20% of all 401(k) payouts. This way, it can extract the tax payment due if you fail to finish a rollover before 60 days is up.

This rule can put you on a tight timeline if you’re shopping for an annuity. Therefore, it’s best to select your annuity before initiating a rollover. Then, you can tell your 401(k) manager to send the check directly to the annuity company. Doing so prevents you from acting as the middleman and gets the money where it needs to go.

Remember, matching contributions on a Roth 401(k) has unique tax consequences when rolling over. Although a Roth 401(k) uses post-tax dollars, your employer’s contributions are pre-tax held in a traditional 401(k). Therefore, your rollover must account for both Roth and traditional 401(k) funds.

Fortunately, you can roll the funds into new Roth and traditional accounts if your new employer offers both types. Likewise, if you’re converting to IRAs, you can use Roth and traditional accounts as needed. However, placing the matching funds into a Roth account will incur income taxes.

Best Practices for Rolling Over a 401(k) Into An Annuity

If you’re considering rolling your 401(k) into an annuity, follow these best practices to optimize your finances:

Understand Annuity Types

Annuities come in fixed, fixed indexed, and variable varieties. Fixed annuities earn a low interest rate, 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 tie gains to stocks and other assets.

However, these annuities might cap gains when the stock market does well or lose value when it dips. Therefore, they are more volatile and usually aren’t eligible for 401(k) rollovers. So, going with fixed is the most reliable option.

Postpone Payments to Increase Income

Like Social Security, your annuity payments usually increase if you delay taking them. For instance, buying a $1 million annuity at 55 and waiting five years 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.

Don’t Overfund the Annuity

Annuities have specific funding thresholds before providing distributions. For example, your annuity might require $500,000 before you can withdraw payments. That said, $1 over this target doesn’t serve a purpose. So, let’s say 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. Your annuity account has $450,000, meaning you need $50,000 more to fund it fully.

In this case, you can roll over $50,000 from your 401(k) and keep the rest in the account. This option will fulfill your annuity conditions and leave you with a sizable chunk of money to continue investing in stocks, bonds, and more.

The Bottom Line

Rolling over a 401(k) is usually a straightforward process in which your plan manager and new employer handle the cash involved. If you have your new plan information ready, you can have your money sent to your new plan without suffering any tax implications. However, if you receive the money, you have 60 days to get it into a new investment account without incurring tax consequences.

In addition, annuities are excellent options for rolling over if you aren’t getting another 401(k). Annuities offer guaranteed payments throughout the rest of your life. However, they can have high fees and no death benefits, so shopping around for the best deal is a good idea. Overall, it’s best to have a thorough plan before initiating a rollover to avoid consequences and retain your entire nest egg.

Tips for Rolling a 401(k) Into an Annuity

A financial advisor can help you make the best rollover choices. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
You can delay Social Security payments just like annuity distributions. Doing so can strengthen your financial position in retirement. Here’s why delaying Social Security is more lucrative than ever.

Income versus growth A new way to look at retirement UPDATE 6 10 2023

Relax, you are covereed for life with plus 10% APR guaranteed

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then call me (530) 553-1214

With markets in continued disarray for well over a year now, investors may be looking at ways to solidify income instead of pursuing traditional growth strategies.

You really can’t blame them. The longer the market falls, the more discouraged an investor may become.

There are solutions to be able to abandon growth for long term income and looking in this direction can open up more possibilities than just buying a handful of stocks and sweating out market crashes.

Certificates of Deposits (CDs) are available both through your local bank or credit union and through most financial advisory firms. Right now, the return on CDS are healthier than they’ve been in decades due to the increase in interest rates by the Federal Reserve.

Time Frame Laddering CDs (my term here) is a sound strategy to both garner possibly higher returns along with a 100% government guarantee on principal. Laddering means buying different maturity dates which enables you to lock in returns for a longer period of time yet have some level of liquidity. For instance, buying a 6 month CD, a 1 year, 2 year and 5 year CD is an example of laddering. Although a 5 year CD would be essentially tied up for 5 years, the shorter duration CDs convert back to cash sooner according to each maturity date that you select. I wouldn’t recommend buying anything longer than 5 years out as there is too much that could happen to interest rates given the current crazy economic environment, but that’s just me.

One could certainly consider 10, 20 or even 30 year products be added to a ladder portfolio. Just make sure you understand the advantages and drawbacks of longer time commitments.

You could use the same strategy for Treasury Bills, notes or bonds. Seek out a financial professional or discuss with your local bank to understand the differences between CDs and Treasury products. These are also government guaranteed.

Buying a basket full of dividend stocks is another way to garner long term income. Dividends are sort of like thank you gifts from the publically traded companies that offer them.

Basically if you buy a share of a dividend paying company, they pay you a certain amount for every share you own every so often.

Some dividend paying companies have paid dividends for decades, and some have increased their payments every year for just as long. Be aware however that dividends can be reduced or even eliminated by the company at any time. As a general rule however, if a company have been paying dividends for years and/or has never cut them, there is a good chance they would want to preserve that track record. Another consideration of dividend paying stocks is the price of the stock could drop or go up. Going up would be nice of course but a drop in price could sting a bit. Price changes do not necessarily change your payment however but it could.

Buying bonds (debt from companies, municipalities or even states) are usually regarded as a bit more stable than stocks. They pay an interest rate and you can buy insured bonds if you’re worried about a default, and yes, defaults can happen.

Many conservative investors hold just a portfolio of bonds, having been taught by their grandfathers that bonds are a stalwart of a consistent investment strategy. Some argue however that this way of thinking is old fashion and indeed, the bond markets have been hammered like stocks on numerous occasions.

I would tend to agree that bonds, albeit, the RIGHT ONES, can be safer than holding some stocks, but in the last few decades, even bonds have, at times, been uncharacteristically volatile.

Like all investments, make sure you understand the ins and outs before venturing into the arena.

Income annuities are contracts from insurance companies that, in exchange for a payment(s) to them, they promise to pay you a certain amount for a certain period of time. Lifetime income is available and you can even select the percentage return you desire, locked in for life, if you meet certain conditions.

Not falling into the traditional discussion of what is called equities, you can always dip your toes into being a landlord and garner a property to rent out. Renting out a home, condo or mobile home, or taking advantage of the Airbnb phenomenon can supplement ones income. This route is a popular one should you be able to manage the work and investment required of such an endeavor.

Concluding, altering ones focus from capital appreciation (growth) to securing income can open up more avenues of consideration rather than just watching Wall Street all day.

“Watching the markets so you don’t have to”

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. (530)559-1214.

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HIGH RATES MAY NOT STAY UPDATE 6 7 2023

HIGH RATES MAY NOT STAY

CONTACT ME TO EARN NORTH OF 10% ANNUALLY GUARANTEED AND UP TO 14% OR MORE

IT IS POSSIBLE!

With interest rates higher than they have been in literally decades, retail investors and pros alike are once again forgetting history, donning their dunce hats and repeating the same assumptions they did the last time rates moved with some conviction.

When offered longer term investment strategies which lock in the current high interest rates, most all those who have money to invest are turning down locked-in rate investments in lieu of short term products like 3 month CD’s and T-bills currently paying north of 5% APR.

On the surface, having the opportunity to sock money away on a 3 month term yet get over 5% APR sounds like a good deal, and it is, but it’s not the best deal.

The shortsightedness on behalf of investors that continue to scoop up 3 month T-Bills and CD’s is solely based on the interest rate and the length of the tie up. After all, 5% APR on a 3 month investment certainly sounds lucrative, but keep in mind the 5% is for 12 months, not 3 months, so you would have to buy them every 3 months, and that’s IF the interest rates doesn’t change.

And therein lies the problem.

To begin with, I am constantly bringing new investments to consumers that lately have been meant to minimize risk yet provide a decent return. The “minimize risk” part is because it is in my opinion the market may have stopped its hemorrhaging for now but I highly doubt our inflation problem will go away anytime soon and a recession looms.

Looking back on interest rates the last 2 or 3 decades illustrates a country that has a debt problem. Mainly the fact that consumer, government and business debt is continually increasing at an alarming rate.

If debt continually increases, interest rates would and will have to continually decrease to service that debt. And true to form, a three or five year moving average of interest rates in the United States show a persistent downward trend. Recent memory for many think of bank savings rates as near zero and its only recently have we seen rates as high as 5% or more.

There is a reason the Federal Reserve (FEDS), who set interest rates, have not been able maintain higher interest rates for a prolonged period of time and it’s because of our gigantic debt levels.

Every time the FEDS have increased rates in the last few decades they tend to break something and have to reduce rates again. Think back to the dot.com, Y2k and 9/11 events that resulted in the FEDS lowering rates to ground level in response. That resulted in the adjustable rate/ refinance craze which eventually resulted in financial Armageddon. That in turn caused the FEDS to drop rates to near zero once more.

Now the FEDS are back in the up mode and, if history is any indication, they will eventually break something, and be forced to drop rates again.

Investors, however, still resist to lock in the current high rates with longer commitments.

They still opt to instead buy short duration CD’s and T-Bills thinking the 5%, three month term is an incredible offering and will continue.

What they fail to realize and therefore are missing a once in a blue moon opportunity to secure high rates for years to come, is that 3 month CD’s and T-bills are just that: 3 months.

If the FEDS drop rates again, down will go the rate on the 3 month products, and you are right back to earning nothing.

Yes, a 3 month CD offering an APR of 5% looks good on the surface, but historically, they may not stay there for long.

One might consider the longer term offerings that lock in those healthy returns and guarantee them and your principal.

Although 5 year CD’s and T-bills might be actually paying lower rates, there exists annuities, laddered portfolios and other investment vehicles that will lock in rates for many years to come.

Unlike the refinance craze where many homeowners assumed when their mortgage rates adjusted they could just refinance, many investors are thinking the same thing when it comes to predicting where rates might go, versus where rates can go.

The bottom line is high interest rates might not stick around very long. Thinking they will is shortsighted and could be costly.

Better to look at history and use some common sense, and consider longer term and guaranteed solutions. In other words, get while the gettin’s good, and get those high rates locked up! Have questions? Feel free to send me an email.

“Watching the markets so you don’t have to”

(end)

(As mentioned please use the below disclaimer exactly) THANKS (Regulations)

Update June 4 2023

The Tug of War in economic policy

Readers of Money Matters will know that to curb our inflation problem, the Federal Reserve has to withdraw liquidity from the financial system. In plain English, because trillions of dollars were flooded into every town, city and state to mitigate the economic damages from the CoVid shutdowns, we now see all those dollars chasing up the price of everything from airline travel to zoo admissions and all things in between.

It’s an accepted fact that when central bankers print a lot of money, inflation is sure to follow. Just think Mexican Peso.

So now the Fed is using its monetary tools to sop up dollars, dampen consumer demand and put the brakes on the economy which will hopefully slow the rapid ascent of prices.

The Fed tools include raising interest rates, removing money from the banking system, tightening down on its credit facilities, and convincing Washington to cut back its spending.

Raising interest rates from near zero to close to 5% in a years’ time and by using their other monetary tools, the Fed has started to see some improvement. Inflation rates have cooled, the stock market has pulled back some, and the economy is indeed slowing.

Even with its progress, the Fed is fighting other things that have occurred which is making their job more difficult.

Washington has no intention of shutting off the free money spigot, and has tossed another five trillion or so into the streets of America in the last 12 months. Washington’s lack of fiscal responsibility must have Fed Chief Jerome Powell pulling his hair out. While he’s trying to remove money from the system, Washington is putting it back in.

We are also realizing money from the generous Covid payments that went to every Tom, Dick, Mary and Harry were lavish, and consumers have been spending their massive savings built up during the Covid event. Being shut in, there were few places to spend all that free money, and now that the fiasco of the shutdowns are gone (thank goodness), people are out and about and in the mood to spend. And they are spending.

Compounding the Feds efforts is the recent rash of bank failures.

Realizing a single bank failure could cause panic in the banking `system` in general, the Fed had to fire up the printing presses once again to the tune of about 300 billion (that we know of) to bail out the banks.

Some of that money, as it always seems to, found its way into the stock market. The stock market is the playground of the financial system. Give a bank a few billion, and like a kid flush with cash going to the candy store, the banks can’t wait to plow at least some of it into Wall Street to relish the sweet taste of quick profits. Sickening I know.

First Washington fights the Feds efforts by giving away even more trillions and now Powell himself is forced to fire up the presses to save some careless banks.

It no wonder the stock market has been running the last few months.

Is it a coincidence that the latest rally in the stock market coincided with the Fed bailing out the banks?

I have always said there is no such thing as coincidence where Wall Street is concerned. There are only people that know things before you do, and then make money from it.

I will stand by my prediction that inflation is here to stay and won’t go away anytime soon. The reason is simple and history confirms it.

When the Feds raise interest rates, they have a history of breaking something. In fact, it is said the Feds raise rates UNTIL they finally do break something.

And when they break something, they have to back off the inflation battle and start lowering rates and printing money again to un-break what they broke.

Indeed, they have already broke a few banks, and opened the money spigots in response.

Next up, they will probably break something else before they are forced to lower rates again.

And when they do that, they will print up even more money and hammer down rates once again. And I predict they will do that before inflation has a chance to recede to a meaningful level.

Which means I hope you have stocked up on aspirin, because besides the headaches you’re going to get, a new bottle of aspirin by that time is going to cost you twenty bucks or more.

“Watching the markets so you don’t have to”

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