Can I Invest My Roth IRA Funds in an Annuity? | Ed Slott and Company, LLC

Can I Invest My Roth IRA Funds in an Annuity?

By Beverly DeVeny and Jeffrey Levine
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This week's Slott Report Mailbag, proudly sponsored by GoldCo Precious Metals, looks at lump sum distribution rules for pension plans and the possibility of investing Roth IRA funds in an annuity. As always, we recommend that you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.


1.

I have been reading Ed Slott's advice about lump sum distributions, but I'm unsure whether any of what he has written applies to me.

My last date of employment was 1/9/15. A former teacher, my pension is from Illinois SURS (State Universities Retirement System). Much of what I have read refers to the "employer’s 401(k).”   

Does my pension fall into that category? If not, can I still take a lump sum and just roll it over into an IRA with my financial advisor? What are the tax implications?

Thanks,  

Lynn D.

Answer:
Employer plans (401(k), 403(b), profit share, money purchase, TSP, etc.) all generally follow the same distribution rules. However, in some instances they can limit what the tax code and ERISA allow. You can only do what your plan will let you do. You need to contact your plan to find out what distribution options you have. Your financial advisor should be able to help you figure out the tax implications for each of your options.
 

2.

Is an annuity vehicle something that can be put into a tax-free position? Like in a Roth account? Thank you!

Answer:
Yes, you can invest your Roth IRA funds in an annuity. If you wish your beneficiaries to be able to stretch distributions after your death, be sure that the annuity that you choose will allow that option.
 

3.

I have Ed's book, "Your Complete Retirement Planning Road Map" and wanted to ask if a rule changed. In the legal case mentioned on page 20 (Bruce and Anne Friedman), Anne did not change an old beneficiary to Bruce, and on her death, Anne's sister received all of the IRA.

Has that rule changed where Bruce would still (as the spouse at Anne's death) be the beneficiary even though the form was not updated and still listed her sister? 

Thanks for the help.

Answer:
The quirk in this story is that Anne’s 403(b) plan was not an ERISA plan. There is no spousal entitlement in a non-ERISA plan. That is why Bruce did not automatically become her beneficiary.
 

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