Can I transfer an annuity to a mutual fund?

Can I transfer an annuity to a mutual fund?

If you have an existing variable annuity you can transfer money from the fixed subaccount to a mutual fund within the contract. If you own a fixed or equity indexed annuity you can move your money to a variable annuity during a process called a 1035 exchange.

Is transferring an annuity a taxable event?

On the surface, transferring from one annuity to another makes sense. It’s a tax-free event. No income taxes are triggered. However, just because you can transfer an annuity to another annuity doesn’t mean you should.

How can I get money from my annuity without penalty?

The most clear-cut way to withdraw money from an annuity without penalty is to wait until the surrender period expires. If your contract includes a free withdrawal provision, take only what’s allowed each year, usually 10 percent.

How are annuities taxed?

Annuities are tax deferred. What this means is taxes are not due until you receive income payments from your annuity. Withdrawals and lump sum distributions from an annuity are taxed as ordinary income. They do not receive the benefit of being taxed as capital gains.

Can you move an annuity?

Annuities outside of an IRA structure can be transferred as a nontaxable event by using the IRS approved 1035 transfer rule. Immediate annuity type structures cannot be transferred, so only deferred annuities like variable, fixed, or indexed can be moved.

Can you move money from an annuity?

Use a 1035 transfer when you move your annuity. A 1035 transfer is a tax-free transfer from one insurance company annuity to another. You don’t pay taxes or penalties if you transfer the funds this way. In order to do a 1035 transfer, you have to fill out a special paper and check “1035 transfer” on the application.

Can you roll over an annuity to another annuity?

Yes, you can roll over or exchange a fixed annuity for a new annuity. Roll the fixed annuity into another annuity contract using a 1035 exchange. This means that the transfer follows the provisions of IRS tax code section 1035.

What are the tax consequences of cashing in an annuity?

Do you pay taxes on annuities? You do not owe income taxes on your annuity until you withdraw money or begin receiving payments. Upon a withdrawal, the money will be taxed as income if you purchased the annuity with pre-tax funds. If you purchased the annuity with post-tax funds, you would only pay tax on the earnings.

Can a variable annuity be transferred to a mutual fund?

However, variable annuity contracts contain mutual funds and fixed accounts. If you have an existing variable annuity you can transfer money from the fixed subaccount to a mutual fund within the contract. If you own a fixed or equity indexed annuity you can move your money to a variable annuity during a process called a 1035 exchange.

Do you have to pay taxes on a variable annuity?

Consider the type of annuity you have. If you have a fixed annuity and want the potential growth of mutual funds, you can avoid the federal penalties and tax by doing a 1035 tax-free transfer into a variable annuity that offers mutual fund type investment options. Check for penalty free amounts each year.

How are withdrawals from an annuity account taxed?

If money is left in your annuity account, the IRS considers the first and subsequent withdrawals to be interest and subject to taxes. Regardless of how you withdraw the money, the tax status of the contract, whether qualified or non-qualified, determines how much of the withdrawal will be taxed.

What happens when you transfer an annuity to a trust?

The process of transferring an annuity to a trust may be a bit more complex. This is because you’re going to want to make the trust the owner and beneficiary of the annuity. The trust would then dole out funds according to its preset terms. In addition, the type of trust you transfer the annuity to determines the possible tax consequences.