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.

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.