Why would anyone make a tax-deferred rollover investment, such as an annuity, part of an already tax-deferred retirement account?  In fact, there are plenty of reasons for doing this that you may not be aware of. Investing in annuity IRA rollover is actually a fairly common investment strategy to rollover IRA, and you’ll find that a large portion of existing annuity assets are held in IRAs and other qualified accounts. Let’s look at why this is the case.

First, let’s consider why rollovers are your best choice for moving funds out of a traditional IRA and into your new annuity IRA.  The benefits of a rollover – versus a disbursement or withdrawal – are that you can continue to grow your investments and defer taxes on both the original contributions and any investment returns until you begin withdrawals, usually one you reach retirement age.  Rollovers – especially direct rollovers – offer great protection for your money and enable it to maintain its tax deferred status without opening you up to taxes or penalties.

In addition to the benefits of choosing a rollover, there are benefits to choosing an annuity IRA as your rollover destination.  Using annuities as part of a retirement strategy has some very attractive guarantees for many investors, including the income assurances that are built into annuities and the insurance aspects of the plans.  In addition, the death benefits of annuity IRAs shouldn’t be ignored.  A death benefit is a set amount of money that the plan beneficiaries will receive upon the passing of the account holder.

Annuities are also a great tool when you want to diversify a large and complex retirement plan. When the terms of the annuity IRA are met, there are more guarantees involved with these plans than with more traditional investments.  Diversifying your retirement savings with an annuity IRA can provide some level of protection against market swings that could decimate traditional, stock market based investment accounts.

Another common benefit of some types of annuity IRA plans is the “Guaranteed Lifetime Minimum Withdrawal Benefit.”  This feature promises that the account holder will, at a minimum, receive a return equal to the sum of all contributions, no matter how badly the underlying investments perform.  This is received as regular withdrawals, paid over a specified amount time.  The best of these benefits will guarantee withdrawal rates of at least 5 percent annually for life, usually beginning at age 65, although many insurers will increase rate if the account holder will hold off on withdrawing from the annuity for at least 10 years.

However, there is some controversy surrounding annuity IRA plans.  As you can see, a major benefit of the annuity IRA takes effect only after the account holder has passed away, meaning that it won’t benefit the account holder in his or her retirement years.  In addition, you’ll find that the management of an annuity IRA will accrue large fees, much larger than more traditional retirement savings accounts.  This may cut into the return you can expect on the money you’re investing for you future.

It is these high costs that form the basis for most of the arguments against annuity IRAs.  You, as the investor, will have to balance these costs against the very real benefits that such an arrangement will bring you and your beneficiaries.  If these costs work out in the end, then this may be a great tool to add to your plan.  Consider sitting down with a financial planner who can help you decide whether an annuity IRA rollover is a good choice for you and your financial future.