Many years ago, when people stayed with one company for the entire life of their careers, their primary form of retirement savings was investing a few minutes in looking at their pension plan statements.  These days, retirement investing is a whole new ballgame, and IRAs – in one form or another – are the most popular way to invest for retirement.  One form of IRA is an annuity IRA, which provides the tax deferred benefits of an IRA along with the regular, periodic payments of an annuity.

If you have funds in an IRA, you can roll them over into an annuity IRA, with a few exceptions.  Most people perform IRA rollovers when they change jobs, so that’s a good time to review your options with a financial adviser and make a choice that’s in line with your retirement investment goals.

There are some advantages to performing a rollover into an annuity IRA, aside from the inherent benefits of the annuity IRA itself.  First, when you perform a direct rollover, the money is transferred directly between investment vehicles.  This type of transaction is called by a variety of names including a direct rollover, trustee to trustee rollover or trustee to trustee transfer.

When you perform this kind of direct rollover, there’s no question in the mind of the IRS that the transaction is a direct rollover.  In this type of transaction, the trustee of your former IRA and the trustee of your new annuity IRA work together to move the funds directly from your original account to the new one.  This means that your money maintains its tax deferred status, and you also avoid any withholding or tax penalties.

What you want to avoid when you’re moving your money is receiving a disbursement or making a withdrawal – or at least having it appear that you’ve done so to the IRS.  IRAs, including annuity IRAs, are designed for your retirement years.  Withdraw that money before you reach retirement age and, unless you meet the criteria for an exception as defined by the IRS, you’re going to pay a penalty for early withdrawal.  In addition to that early withdrawal penalty, you’re going to have to pay taxes on the money you receive – remember that you deferred taxes on that money when you original invested your pretax dollars.  A rollover protects your money, while a withdrawal or disbursement dips into it – sometimes substantially.

There are situations when it can appear that you have received a disbursement or made a withdrawal when that is not the case.  This most frequently occurs in the case of what is called an indirect rollover or “payout then transfer” transaction.  In these cases, rather than your money going directly to the trustee of your new IRA rollover annuity, the money comes to you.

If this happens, you have a limited amount of time to deposit the money into a new qualified annuity IRA – miss that window of time, and the IRS will consider the transaction a disbursement or withdrawal and you’ll be responsible for taxes and penalties.  In light of this, you can easily see that it’s better to choose a direct rollover and minimize any risk to your retirement investment funds.