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Move Variable Annuity funds to IRA?
Old 03-15-2018, 10:11 AM   #1
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Move Variable Annuity funds to IRA?

A friend of mine was sold a Variable Annutiy (Yes, don't say it. I know.) over ten years ago and now would like to move the money out of it into an IRA account with an company like Fidelity or Schwab. The VA is over ten years old and should not have any withdrawal fees.

He has very little income at this point, mainly interest from savings. He lives off of withdrawals from past savings and is waiting to take SS at 70. So far so good.

However, we are concerned that taking all the VA money out at once will trigger a big tax bite. Thus, the idea is to move it to a regular IRA and keep it tax sheltered for a while longer, taking money out in small chunks every year.

Are there any gotchas or traps in doing the move from the VA to and IRA that he should know about? I know little about VA's except to avoid them.
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Old 03-15-2018, 11:00 AM   #2
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Not all VA's are the same. Vanguard offers VA's that simply wrap their mutuals fund in the insurance product. It bumps the expense ratio a little bit, but not horrifically.

That being said, "your friend" can transfer the VA from one company to another with zero tax consequences.

When funds are removed from a VA (not transferred to another VA), you pay ordinary income on the gains. The gains must come out first. So you need to "un-bury" your principle. But once you uncover it, it comes out without being taxed. At least presuming it was taxed before it went it, which, I think, is the way these things work.

Once the money is out of the VA, you can do with it whatever you want, subject to the limitations of whatever you want to invest it in (tIRA, Roth, etc all have limitations).
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Old 03-15-2018, 11:06 AM   #3
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I think the first thing to do is to verify if the VA is qualified (funded with pre-taxed dollars) or funded with after tax dollars (more typical for a VA)? If qualified it should be possible to transfer it to a traditional IRA but if it was funded with after tax dollars probably not.
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Old 03-15-2018, 12:32 PM   #4
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Your friend should get strategy advice from a CPA, not SGOTI.
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Old 03-15-2018, 04:32 PM   #5
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Great ideas. Thanks.
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Old 03-15-2018, 04:51 PM   #6
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Quote:
Originally Posted by OldShooter View Post
Your friend should get strategy advice from a CPA, not SGOTI.
+1000 That's why I'm an old school investor. If you need to ask about it you shouldn't be in it.
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Old 03-15-2018, 05:56 PM   #7
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One mustn't confuse SGOTI with the centuries of wisdom you get from the er forum crowd, lol!
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Old 03-15-2018, 06:12 PM   #8
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One mustn't confuse SGOTI with the centuries of wisdom you get from the er forum crowd, lol!
Not to mention the humility!
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