I bought an annuity inside an IRA when I was a dumb kid; can I annuitize it before I'm 59 1/2?

[Errollyn]

When I was a teenager I went to my local insurance office and opened an annuity. I contributed $100 per month to it during my young adult years, and I've never taken any money out of it. The problem is that it's packaged as an IRA, so I'm guessing I can't touch it penalty-free until I turn 59 1/2 years old (I'm currently 51). I emailed the insurance company to ask them about it, but they told me to talk to a financial advisor.

So I'm wondering...I've gone past the 10-year annuity requirement to withdraw this money penalty free, but does it being an IRA mean I need to wait until I turn 59 1/2?

I'm just confused why I was sold a "flexible premium deferred annuity" that's also an IRA, and how that works for withdrawals. Below are some of the account details if that helps.

 

[engineernerd]

People can fund these annuities on either a before-tax basis (contributions would have been deducted from your income when you made them) or an after-tax basis.

This being an IRA Plan Type suggests you got tax deductions for your contributions way back then. Did you happen to save your old tax returns so you can check?

Anyway, I'd guess you would indeed be subject to the 10% early-withdrawal penalty for withdrawals prior to age 59.5.

 

[Errollyn]

People can fund these annuities on either a before-tax basis (contributions would have been deducted from your income when you made them) or an after-tax basis.

This being an IRA Plan Type suggests you got tax deductions for your contributions way back then. Did you happen to save your old tax returns so you can check?

Anyway, I'd guess you would indeed be subject to the 10% early-withdrawal penalty for withdrawals prior to age 59.5.

That's kinda what I thought, but I appreciate the confirmation. I did take the tax deductions when I was contributing, so that makes sense. I don't need the money now, but had considered annuitizing it since it has consistently earned just 3% for the last 15 years.

 

[Spock]

Another option MIGHT be to roll it over to a traditional IRA.
Dad had an ill-advised annuity holding his IRA. Since it hadn't been annuitized we were able to roll it to Fidelity. The devil may be in the details.

 

[engineernerd]

Agree with Spock, though to be sure what your options are you'd probably need to read the actual annuity contract with all the legalese.

 

[fosterscik]

You should be able to do an IRA rollover to another IRA custodian (Vanguard, Fidelity...).
That will be tax and penalty free and will allow you to invest the funds any way you want. Call One of those other companies and the should be able to handle it for you.

 

[Errollyn]

Another option MIGHT be to roll it over to a traditional IRA.
Dad had an ill-advised annuity holding his IRA. Since it hadn't been annuitized we were able to roll it to Fidelity. The devil may be in the details.

It is a traditional IRA. And an annuity. I've always been confused by that, TBH. I'm not sure if I was sold a bad insurance product because I was basically a child at the time, or if this is a perfectly normal combination of annuity and IRA.

 

[Spock]

It is a traditional IRA. And an annuity. I've always been confused by that, TBH. I'm not sure if I was sold a bad insurance product because I was basically a child at the time, or if this is a perfectly normal combination of annuity and IRA.

When I ran Dad's IRA/Annuity past a college roommate who is "in the business", his high level feedback was it doesn't make a lot of sense to combine a tax deferred annuity in an already tax deferred account.

 

[Al18]

You can’t annuitize it before age 59 1/2.

You could swap your current annuity with one from another company paying a higher rate. According to Guaranteed Fixed & Income Annuities | Blueprint Income I see you could get a fixed rate annuity at an A rated company paying 5.20% for 8 years. I plugged in your info and the annuity would pay $48,000 in interest after 8 years. You annuity would be worth $144,000 at that time and you could annuitize it, or buy another fixed rate annuity (MYGA) and withdraw up to 10% per year penalty free, but would owe taxes at your regular tax rate.

 

[Kings over Queens]

It is a traditional IRA. And an annuity. I've always been confused by that, TBH. I'm not sure if I was sold a bad insurance product because I was basically a child at the time, or if this is a perfectly normal combination of annuity and IRA.

The traditional IRA part is the tax deferral of the contribution and growth.

The annuity part is a financial product sold by an insurance company where they promise to pay you something over a certain amount of time.

You can buy annuities with tax deferred or after tax money and you can open an IRA the same way, with tax deferred money or post tax (roth)

In your case the IRA is the account, and the annuity is the funding product.

As mentioned, you could roll the IRA into another IRA and change the product, either with another annuity (variable or index) or buy mutual funds.

 

[Bruno]

I am no expert but I have one in my IRA and figure in 5 years would cash it in, inside my IRA. There would be no taxes need to be collected inside the IRA and then invest it as I see fit. I would think then pay taxes on what I take out. PLEASE this is just my 2 cents worth.

 

[fosterscik]

It is a traditional IRA. And an annuity. I've always been confused by that, TBH. I'm not sure if I was sold a bad insurance product because I was basically a child at the time, or if this is a perfectly normal combination of annuity and IRA.

I had a similar product when I briefly worked for the state of Florida - an annuity inside an IRA (although mine had a better guaranteed minimum interest rate). I needed permission from the State to access the funds (I had to provide proof I had terminated employment with them) but once it was approved, it was easy to roll over to another vendor and invest in any way I chose

 

[Errollyn]

Thanks everyone. I'll take annuitization off the table until I hit 59 1/2. And I'll look into rolling it into a better product with Fidelity.

 

[fosterscik]

There's no need to wait until 59.5 before rolling over tax and penalty free.

 

[Errollyn]

There's no need to wait until 59.5 before rolling over tax and penalty free.

Yeah, that's what I meant to say, but probably worded it poorly.

 

[OldShooter]

Read the contract carefully, then call the company. Get your answers in writing and, if the tax situation is not crystal clear, ask a CPA. SGOTI is not a reliable advisor, especially in the case of a specific annuity.

 

[Bruno]

Read the contract carefully, then call the company.

Yes the OLD one is a very wise one. I had one annuity that I had a window to decide what to do and then the surrender went back to 5%. I love annuitys but you need to read them very carefully.

 

[Errollyn]

Yes the OLD one is a very wise one. I had one annuity that I had a window to decide what to do and then the surrender went back to 5%. I love annuitys but you need to read them very carefully.

Funny thing was I did call the company, and they told me to find a financial advisor.

 

[Bruno]

Funny thing was I did call the company, and they told me to find a financial advisor.

Insurance company's might be even WORST than BANKS!!

 

[OldShooter]

Funny thing was I did call the company, and they told me to find a financial advisor.

Can you hear the sound of alarm bells ringing?

I would start looking for a specialist attorney and in the mean time I would contact the consumer help lines at your state's attorney general office and your state's insurance commissioner. Tell this story and see what they recommend. Insurance companies do not like receiving letters from state consumer advocates. You will immediately get their attention.

Log person name, date/time, and conversation content for every contact. Try wherever possible to push the conversation towards email so you can minimize he-said/she-said type disputes.

 

[Bruno]

SGOTI is not a reliable advisor, especially in the case of a specific annuity.

Can Please explain what SGOTI Means. AI does not even know what you are talking about!!
Sorry I was not smart enough to ask the right question.
In forum slang, “SGOTI” usually means “Some Guy On The Internet.”

 

[MarieIG]

Can Please explain what SGOTI Means. AI does not even know what you are talking about!!

Some Guy/Gal on the Internet.

 

[Errollyn]

Can Please explain what SGOTI Means. AI does not even know what you are talking about!!

I had to google it too..."some guy on the internet."

 

[OldShooter]

Yup. Urban Dictionary: SGOTI Sorry.

 

[Texas Proud]

I am not sure that you did get a tax break on the purchase of this... how did you pay for it?

Check your tax returns and see... if so, then you have a basis in the amount that you do not want to lose...

If it is an IRA, who is the custodian? If this were me I would cash it out completely inside the existing IRA and then move it... or if the investment options are OK keep it there and invest somewhere else..

As others have said, roll it over if you do not like who is holding it now...