Q: I have my IRA with an insurance company and I would like to transfer the money into other types of accounts. I am 58 years old and would like to know if I can do this without paying a penalty.
A: If your IRA is in an insurance company annuity program, then there might be a penalty for transferring your account. This points out one of the reasons why annuities are not really idea vehicles for IRAs.
Annuity contracts generally have terms which include termination penalties, although these sometimes decline over time. On first glance, that might not seem like a problem for an IRA, which is a long-term savings vehicle. However, if you wish to transfer your IRA investments, an annuity would not give you the flexibility you would have if your IRA were in savings accounts, mutual funds, or investment accounts.
This lack of flexibility makes an annuity a less-than-ideal fit for an IRA, because one of the primary attractions of an annuity is the tax deferral of investment earnings - something you would have within an IRA anyway.
If you are in an annuity and wish to transfer your IRA, here are three options:
- Check your annuity contract, and see if termination penalties would apply. If you've had the annuity for a long time, there is a chance that some or all of these penalties will have expired.
- See if you have grounds for breaking the contract. If the insurance company has failed to deliver on promised services, you might be able to negotiate a withdrawal from the contract without penalty.
- Look within the insurance company for more suitable investments. If you are locked into your contract, but don't like the investment approach of your annuity, see if the insurance company will let you transfer to another product within their company without penalty.
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