With a traditional IRA rollover, you’re utilizing the basic tenets of IRAs to your advantage.  These accounts will place your money in a tax deferred status, allowing you to defer the tax burden until sometime in the future – hopefully, when your financial status has changed, and your tax rate is lower than when you first invested the money.  A traditional IRA rollover will move the money from one account to another and maintain the tax deferred status of the money, which is a very desirable thing.

Annuities – even those associated with an IRA – are a very different animal.  Generally, they have attractive guarantees that many investors find advantageous.  The best of these are the income assurances that are built right into the structure of the annuities, providing a specified payout, regardless of market performance.

Other investors like the fact that there are insurance products built right into these plans – more specifically, that most annuity IRA accounts offer a death benefit (a set amount of money that a beneficiary will be paid upon the death of the account holder).  If your annuity IRA comes with a death benefit, the beneficiaries typically will receive either the fair market value of the fund or, if it’s greater, they’ll get the original principal that was paid into the account.

Of course, there are issues with this type of annuity structure – specifically, that the major benefit of the annuity occurs only after the account holder dies.  In addition, you can’t ignore the fees.  Annuity IRAs are typically associated with very large fees, much larger than other investment vehicles, such as a traditional IRA or especially a Simple IRA.  This will undoubtedly reduce the return an account holder can expect to receive on the money invested, as every penny that goes to someone else is a penny that the account holder doesn’t receive.

The potentially high cost of the annuity IRA is the chief argument against them.  You, as an investor, will have to balance that argument against the very real benefits, including the fact that an Annuity IRA is much easier to manage than other types of IRAs.  Traditional IRAs, for example, may be subject to little or no fees.  But realize, however, that these other types of IRAs have none of the income guarantees you’ll find with an annuity and that if you try to withdraw even part of an IRA before the magic age of 59 and a half, the penalties can be substantial.

In the end, it all comes down to balancing the immediate needs that you have against the long term needs of you and your family.  Both tools can have a place in your retirement savings plans, but it’s up to you to decide just where that place is and how to best distribute your money between these accounts.

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.