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My husband bought an annuity many years ago (when he was younger and didn't understand much about investing...). We're now trying to get rid of it. I don't believe that there is a surrender charge because he has held the annuity much longer than the seven year time period in which surrender charges are applicable according to the contract. The annuity appears to be tax deferred and he hasn't paid any taxes on the interest it has earned over the years. He is age 48. The last statement shows the value of the annuity being approximately $21,000.

Our Questions:

1) How does he get his money out of this "investment"?
2) Will he pay a penalty for making a withdrawal since he is under age 59.5?
3) Is there any way to avoid the penalty, e.g., rolling the funds over into a self-directed IRA?
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CCSand asks:

1) How does he get his money out of this "investment"?
2) Will he pay a penalty for making a withdrawal since he is under age 59.5?
3) Is there any way to avoid the penalty, e.g., rolling the funds over into a self-directed IRA?


1) Your broker can do it for you.
2) No penalty if you make a direct Traditional IRA transfer.
3) However, there will be a tax consequence if you decide to roll over the Traditional IRA into a Roth IRA. Also, there will be a 10% penalty if you pay the tax from money taken out of the Traditional IRA.

I suggest you roll over into a Roth IRA if you can pay the tax consequence from money outside of your IRA.

Good Luck,

TB


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I wrote:

1) How does he get his money out of this "investment"?
2) Will he pay a penalty for making a withdrawal since he is under age 59.5?
3) Is there any way to avoid the penalty, e.g., rolling the funds over into a self-directed IRA?


To which Turkeybreath replied:

1) Your broker can do it for you.
2) No penalty if you make a direct Traditional IRA transfer.
3) However, there will be a tax consequence if you decide to roll over the Traditional IRA into a Roth IRA. Also, there will be a 10% penalty if you pay the tax from money taken out of the Traditional IRA.


Are you saying that the law allows a tax-free rollover from an annuity into an IRA? If so, that would be great. However, from my reading about annuities in the last couple of days I fear your advice is incorrect and that we will be stuck with making a 1035 exchange into an annuity with a better rate of return.

Does anyone have any comments?

CCSand
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CCSand wrote:

Are you saying that the law allows a tax-free rollover from an annuity into an IRA? If so, that would be great. However, from my reading about annuities in the last couple of days I fear your advice is incorrect and that we will be stuck with making a 1035 exchange into an annuity with a better rate of return.

That is how I understand it. I too shall be watching for responses form our respected "elders".

CCSand, what do you mean by 1035 exchange ?

TB
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Turkeybreath wrote:

CCSand, what do you mean by 1035 exchange ?

1035 is the section of the Internal Revenue Code that allows tax-free exchanges between like-kind properties, in this case, annuities. In this case it would allow us to switch without realizing any penalties or tax on the money.

CCSand
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