How To Transfer an Annuity From One Broker To Another

How To Transfer an Annuity From One Broker To Another

Annuities are contracts with insurance companies. Sometimes, something better comes along years after you purchase an annuity, or you may simply become dissatisfied with your brokerage and want to transfer your investments, including an annuity, to a different firm. It is critical to know how to transfer an annuity from one broker to another to avoid tax penalties, surrender charges, and negative impacts on survivor benefits.

Rollovers

Annuitants who have yet to reach age 59 ½ face potentially large penalties if they withdraw money from an annuity, even if it’s to buy another one. A direct 1035 rollover can avoid IRS tax penalties if you transfer the annuity to another that is substantially similar.

An indirect rollover occurs when the insurance company sends a check, which the annuitant uses to purchase another annuity. The purchase must occur within 60 days, or the check will be considered a distribution. An indirect rollover is not eligible as a 1035 exchange and may be subject to taxes. Your new annuity broker must be authorized to offer the same type of annuity as your previous contract.

Surrender Charges and Fees

Be very careful when considering a rollover, as surrender charges imposed by the original annuity company may still apply. Some surrender periods can extend up to ten years, imposing steep percentage charges if you take money out before that time has elapsed. The new annuity may also impose surrender charges. Be sure you fully understand the terms before selecting a replacement annuity. Annuities may offer bonuses for exchanging into the new contract, but beware—associated commissions or fees may consume any bonus offered.

Paperwork

Transferring or exchanging an annuity from one broker to another requires attention to detail. A 1035 exchange requires that you purchase the new annuity under the same name as the old, with no changes in ownership. Read everything carefully, ask questions, and seek legal and tax advice if necessary.

Death Benefits

Some annuities offer death benefits to surviving spouses or heirs if the annuitant dies during the life of the annuity. These can be quite favorable, as they guarantee the original amount invested even if the value of the annuity has declined substantially. However, if the annuity is rolled over to a new annuity when it has lost substantial value, the death benefit may not travel with it. In other words, instead of returning the full original purchase amount or the highest value the annuity attained during the life of the original annuitant, the new contract may provide only the value at the time of the rollover.

Ready to take the next steps?

For more information about our services, schedule a meeting today!