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

[Al18]

To transfer an annuity from one company to another isn't a big deal. It's called a 1035 exchange, and it may take 1-2 months to complete the transfer - life insurance companies don't move fast.

 

[engineernerd]

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

Customer service may not know the details of such an old product and may be reluctant to risk telling you anything they could be held to that contradicts what your written contract says.

 

[MarieIG]

To transfer an annuity from one company to another isn't a big deal. It's called a 1035 exchange, and it may take 1-2 months to complete the transfer - life insurance companies don't move fast.

I did a 1035 transfer last year. I was told the hold-up in my case was due to NYS regulations which requires that NYS must review and approve the contract before it can be issued. (As an aside, I am not objecting to this process as I believe that it serves to protect the potential annuitant.)

 

[pb4uski]

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.

No alarm bells ringing at all (other than perhaps in your head) .

Many financial companies won't venture into tax advice due to legal exposure.

But what the OP can legitimately ask and get an answer to is if he surrenders it how the company will report it to the IRS on the 1099-R that the OP will receive in early 2026. That, along with a little research, will give the OP some insight into the tax implications.

From what the OP wrote I think it is pretty clear that if is a flexible premium deferred annuity. It was probably put in an IRA because the OP bought into it looking for deductible IRA contribution and that is why it is in an IRA.

I suspect that his best option will be to surrender it and deposit the surrender proceeds into a IRA at a brokerage company as a rollover contribution.

 

[Jerry1]

There’s a process titled 72t that may work for you.

Read this:

Substantially equal periodic payments | Internal Revenue Service

Insights into substantially equal periodic payments under IRC section 72(t)(2)(A)(iv), with examples.

www.irs.gov

You can take certain payments out without incurring the penalty but I’m not sure if your annuity will allow that. I’m guessing you don’t want to officially start to annuitize the full amount. But, it may allow for annual withdrawals.

 

[Errollyn]

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...

I definitely took the IRA credits each year I was contributing to it. I still have that info in my tax files. It's administered by Farm Bureau, which has a pretty major presence in the Midwest.

 

[TickTock]

I suspect that his best option will be to surrender it and deposit the surrender proceeds into a IRA at a brokerage company as a rollover contribution.

As there are no surrender charges, this is what I suspect as well. As long as the money stays inside the IRA there shouldn't be any tax consequences. (I am not a CPA.)

But what the OP can legitimately ask and get an answer to is if he surrenders it how the company will report it to the IRS on the 1099-R that the OP will receive in early 2026. That, along with a little research, will give the OP some insight into the tax implications.

Good advice!

 

[Al18]

Fidelity has a team to help you close out an annuity. Best to contact Fidelity to get the process started.

 

[Koolau]

At some point - once you get it transferred to a tIRA at Fidelity or elsewhere, I'd consider converting it to a Roth IRA. Just sayin'.

 

[VanWinkle]

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.

It was a case of what paid the salesman the most, not necessarily what was good for you. No need to have an annuity in an IRA as it is already tax deferred by the annuity contract. I would transfer the annuity money to an IRA at one of the big 3, Vanguard, Fidelity, or Schwab. I would suggest Fidelity or Schwab as they would be easier to work with for the rollover from the annuity and they have offices available if you need assistance.

Ending up with 96k makes me think it was not a dumb decision at all, just not the best decision. Congrats to you for saving at such a young age.

 

[Errollyn]

It was a case of what paid the salesman the most, not necessarily what was good for you. No need to have an annuity in an IRA as it is already tax deferred by the annuity contract. I would transfer the annuity money to an IRA at one of the big 3, Vanguard, Fidelity, or Schwab. I would suggest Fidelity or Schwab as they would be easier to work with for the rollover from the annuity and they have offices available if you need assistance.

Ending up with 96k makes me think it was not a dumb decision at all, just not the best decision. Congrats to you for saving at such a young age.

Thanks, I use Fidelity a lot so that'll probably be where it goes. I've got a note to talk to them about making the transfer.

I'm glad 19-year-old me started saving money, and you're right that's never dumb in itself. In hindsight, I wish someone wiser would've pointed me to a different product at the time, but $90K is nothing to scoff at.

 

[Al18]

FYI it's not a bad idea to keep some money in a MYGA or a SPIA. Those two types of annuities have low commissions for the broker and are typically a stable investment.

 

[Texas Proud]

/snip/

Ending up with 96k makes me think it was not a dumb decision at all, just not the best decision. Congrats to you for saving at such a young age.

One of my sisters made a decision like this... where someone came around work and got her to invest in a high cost option... she came to me maybe 15 years later to ask what to do... I said to move this money ASAP..

Her comment to me was something like 'I would not have invested anything if he had not come around so it was a good investment at the time'... she now has money!!!

So yes, OP, you have $96K you might not have now if you had not done this...

 

[Gonzo26]

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.

I did that also

 

[almost there]

Some are 55. Best to call and find out.

 

[2retireearly]

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.

Insurance companies will not advise you , they always say talk with a financial advisor, if you are wishing to take money out of it.

 

[Imackenzie]

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.

View attachment 61547

View attachment 61548

Substantially Equal Periodic Payments (SEPP), based on IRS Rule 72(t), allow penalty-free, early withdrawals from IRAs or 401(k)s before age

. Payments must be taken annually for at least five years or until age

(whichever is longer) based on IRS-approved life expectancy methods. Modifying the plan early triggers retroactive penalties.

 

[Errollyn]

Substantially Equal Periodic Payments (SEPP), based on IRS Rule 72(t), allow penalty-free, early withdrawals from IRAs or 401(k)s before age
View attachment 61883

. Payments must be taken annually for at least five years or until age
View attachment 61884

(whichever is longer) based on IRS-approved life expectancy methods. Modifying the plan early triggers retroactive penalties.

Thank you. I just went through the Fidelity 72(t) calculator, and it's probably not worth withdrawals right now based on the low distribution for this size of an account. But maybe in the future.

 

[Murdock75]

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.

View attachment 61547

View attachment 61548

Since it's in an IRA wouldn't it be better to withdraw sums of money and let the rest keep growing? I assume that when you annuitize the account value is frozen at that time?

 

[Errollyn]

Since it's in an IRA wouldn't it be better to withdraw sums of money and let the rest keep growing? I assume that when you annuitize the account value is frozen at that time?

Yeah, I probably won't annuitize it (despite it being a literal annuity). But I was looking to see if there was a way to unlock some income prior to my turning 59.

 

[Bruno]

I don't think you are a very Dumb kid. Most of kids your age dont save very much. Like was said up above i like annuitys as long as they are MYGA. No fees and you get what you agree to, but still need to read the fine print. Also I believe you need to get with Fido to help you out. Good Luck going forward!!

 

[hotwired]

I didn't read every single reply here so forgive me if I'm repeating anything, but you may be able to do a 1035 exchange into something as simple as a m y g a, or if you think rates for traditional spias will be lower down the road, you could do a dia now which starts annuitizing at age 59 and a half or later. Just for context, an m y g a is basically an insurance company provided cd. But instead of getting penalized 3 months interest for early withdrawal you get penalized on egregious amount that goes down each year. For example a 10 year myga might be 10% penalty the first year withdrawal, 9%, 8% etc. But, if you leave it in there you get that interest rate every year, compounded. A DIA on the other hand locks in your annuitized amount for a future date. The problem with it is that if you change your mind you only get your principal back no earnings. So what say you buy a dia today that's going to start annuitizing in 10 years, year five you change your mind you only get back your principal, no earnings. So there are pros and cons to both avenues.

 

[junkanoo]

Insurance companies will not advise you , they always say talk with a financial advisor, if you are wishing to take money out of it.

To be fair, insurance companies are not in the advice business.

 

[pb4uski]

Late to this thread and didn't read the whole thing. Do you have a traditional IRA brokerage account? If so, I think you can withdraw the balance of the flexible premium deferred annuity since it isn't yielding much and then make a rollover contribution to your traditional IRA brokerage account and then invest it in whatever you want.

 

[Errollyn]

Late to this thread and didn't read the whole thing. Do you have a traditional IRA brokerage account? If so, I think you can withdraw the balance of the flexible premium deferred annuity since it isn't yielding much and then make a rollover contribution to your traditional IRA brokerage account and then invest it in whatever you want.

That's a good thought, but my other IRA account is a Roth.