Dear Retirement Adviser,
I would like to move my retirement money from a seven-year annuity to a Roth individual retirement account and also move away from my old bank. What is the best way to do this? If I ask my current financial adviser, he’ll just tell me not to move, since he’s handling the money. I’m not sure that I’m all that trusting of this person.
— Alicia Annuity
By waiting until the annuity matures, you avoid surrender charges on the annuity. It sounds like you’re in a certificate of deposit variety of annuity. I hope it carries a great rate.
Annuity products are tax deferred, with taxes due on payments out of the annuity or on withdrawal or maturity. The type of account where you held the annuity is important. If you held the annuity in a tax-advantaged retirement account, like a traditional IRA, you can continue the tax deferral on withdrawal by transferring it into another traditional IRA.
I understand that you want to put the money into a Roth IRA. That would end the tax deferral, and you would owe income taxes on the annuity. The tax bill depends on whether the annuity was funded with tax-deferred dollars in a traditional IRA or using after-tax contributions into a tax-deferred annuity that was not held as a traditional IRA.
If the annuity was held in a traditional IRA, then you’ll be conducting a Roth IRA conversion. If funding a Roth IRA, you must meet the income limitations for the contribution. You’ll need to have enough earned income to make the contribution. Talk with your tax professional if you’re uncertain about the tax liability or the wisdom of investing in a Roth IRA.
You need to decide how you want to invest the maturing funds as well as whom you want to work with as the new account provider. It could be with a bank, brokerage or mutual fund. The new account provider will help you with the process of moving the account. Unless your current adviser is a Certified Public Accountant, don’t rely on him or her for tax advice, at least not exclusively.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.
Ask the adviser