Annuity Rollovers Explained

It is always good to think about the future when dealing with annuities. As children, we were first given the lesson of saving with the use of piggy banks. But now that we are older, it follows that we deal with our finances in a more mature manner. And day by day, we realize that time flies. We are not getting any younger. It is just practical that we think about retirement and how to sustain ourselves in the future. But our financial vocabulary should not be limited to saving only. It should broaden to a more complicated yet yielding form called investment. There are various forms of investment that financial institutions offer. There’s CDs or certificate of deposit, bonds, etc. Any type of investment would yield a return in the form of interests. When an asset is invested in the bank, the individual and the financial institution enters into a contract. In return for the investment, the bank will return the investment to the individual plus interest given that the individual leaves the money in the bank for a certain period of time, anywhere ranging from 3 months or up to 15 years. When the term expires or matures, the individual is then given the option to withdraw the money plus the earned interest or reinvest the asset.

If the money is an IRA, the individual is then given 60 days to think about this matter. If the 60 day period has expired and the individual failed to claim the asset or reinvest it, he will be taxed by the government. This is why when the term ends or a maturity of an asset occurs; it is advisable that the rollover is handled by financial institutions or in business to business transaction. In such a transaction the investor waives constructive receipt of the asset or simply takes his hands of it and lets the financial institutions involved handle the transfer. By doing so, he avoids financial penalties in case he fails to complete the transaction before the government’s deadline of 60 days is reached. One possible destination of the individual’s funds is an annuity.

Annuities are best suited for long term investors.  Any withdrawal prior to age 59 ½ is subject to a 10% tax penalty as well as regular income tax.  Annuities often also have a surrender schedule, meaning that withdrawals may be subject to a penalty by the insurance company if not left in for a predetermined amount of time.  Any guarantees on principal invested is based upon the claims paying ability of the underlying insurance company.