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Before you can initiate an annuity rollover to IRA, you have to set one up in the first place. When you do this, you’ll be asked how you want to pay for the insurance annuity – upfront or in predetermined increments. In addition, you’ll usually be offered a series of investment approaches to select from. It’s a very good idea to do some research on your options before selecting the approach you want, as different types of annuities vary significantly in their benefits.  You may also want to review the offerings of more than one annuity IRA provider before making your final decision.

Typically, you’ll also be asked how you’d like to set up the death benefit of your new annuity IRA.  While death isn’t widely classified as a good thing for investors, a death benefit will provide funds for your spouse and/or children upon your passing and may therefore be a good estate planning tool for you, in addition to more traditional life insurance.  Although it may sound morbid, the death benefit is one of the main reasons people choose to include them in their retirement plans, as their beneficiaries will receive a guaranteed amount upon death, no matter how much has been contributed to the IRA annuity’s agreed-upon cost.

In addition, you need to know that variable annuity IRA plans are set up to be tax deferred, just like traditional IRAs.  So, while your IRA grows, you won’t have to pay taxes on the profits that you earn in the account.  However, understand that you will be responsible for paying these taxes later on, when you take money out of the account in retirement.  For this reason, the earlier you set up the annuity IRA and start transferring money into it, the better.

Once the IRA annuity is established, you can begin to move money from an existing IRA into it, through the rollover process.  To get started, you’ll need to contact the manager of the new IRA annuity and tell him or her that you want to initiate a direct transfer of funds.  You’ll need to use this exact term – direct transfer – as this will start a process that will move funds directly from one account to another.  Doing the rollover in this way will maintain the deferred tax status of your investments money.  Allowing the money come directly to you – as in the case of an indirect rollover – will open you and your investment up to a new tax burden.

The best way to think of a direct transfer is that it’s considered to be a reportable event, according to the IRS, but not a taxable one.  This way, you can move money into your new annuity IRA and still avoid paying taxes on the money until well into the future.  After all, that’s why you established a retirement plan in the first place – so that your investments could grow, undisturbed and tax free, until you need to draw on them later in life.