When an employee retires with an intact 401 (k), the funds can be moved to a self directed IRA without tax liability. This is called a direct rollover. A rollover is accomplished without any tax liability and is often directly transferred from one custodial to another. In addition to a direct rollover, the owner of the 401 (k) may have the funds sent directly to them and keep them in their possession for a period of 60 days. If the funds are not re-deposited to an IRA during the 60 days, they then become taxable and are no longer considered an IRA.
During the accumulation process at the time the employee is working, the goal is normally growth. But as retirement time approaches, a more conservative allocation of assets may be desired.
At retirement the goal can be much different such as preservation of capital, the stronger need for safety and security becomes much more important and the shift normally changes to income. How will the income replace the income earned while employed? How do you make sure your lifestyle will continue in retirement?
The use of an annuity in an IRA at retirement time can help provide the necessary income, safety and security desired at this stage of your life. Annuity contracts can contain income riders which can provide income at a higher than market rate for almost any time period, even lifetime. Annuities also contain a provision called “settlement options” which include a guaranteed table of factors in determining the minimum amount of income that will be paid. These rates are contractually guaranteed in the annuity contract.
Many people feel very comfortable investing their retirement packages in insurance companies because of the guarantees these contract provide. The term “safe, secure, recurring” income means you can spend 100% of your monthly check because the next month it will arrive again. Reccurring over and over and over.
It is important to fully understand your individual needs before making any final decisions. While annuities offer safety and security, there are situations when an annuity may not be the best option. The choice for an annuity should be made only after a complete and thorough fact finder is completed and then when a full understanding of your goals and needs are established.