Can I Change an IRA Annuity to Another Type of Account?

by Ciaran John, studioD

You can cash in an Individual Retirement Arrangement annuity and deposit the proceeds into another type of investment. However, you must contend with a significant tax bill if you opt not to invest the money into another IRA. Additionally, if you have a deferred annuity, the transfer may cost you money in terms of penalties. However, with an immediate annuity you only have a limited window of opportunity to transfer your funds.


You can invest IRA money in a wide range of securities. From a tax perspective, nothing prevents you from rolling money from an IRA annuity to an IRA certificate of deposit or mutual fund because during such a transfer, your money remains within the IRA and has no impact on your tax liability for the current year. If you withdraw funds from an IRA and deposit the cash into a non-retirement fund, you have to pay taxes on the withdrawal. You also have to pay the 10 percent federal-tax penalty on any money that you withdraw from your IRA while you're under the age of 59 1/2. The federal government waives the tax penalty if you withdraw the IRA money to cover some medical expenses and certain other costs.

Deferred Versus Immediate

Many states have laws that provide annuity purchasers with a free-look provision. During this time frame, you can cancel your annuity and get your money back. If you have funds in an IRA annuity, you can preserve the tax status of those funds and move the proceeds to a different annuity account. On an immediate annuity, you can cash in your contract after the free-look period ends because at that point, the insurer converts your lump sum to a lifetime income stream and you cannot reverse this process. On a deferred annuity, the insurer invests your money in fixed-interest accounts or mutual funds and you can move the money to another IRA investment at any time. However, you may incur a penalty fee.


Every deferred annuity contract has an accumulation phase that can last for more than 10 years and during which you must pay a penalty if you surrender your contract. Typically, the penalty on a fixed annuity only impacts your interest. On a variable or an indexed annuity, the penalty can eat up your interest and reduce your principal. When the accumulation phase ends, you can move your money either to another annuity or to a different type of IRA account without the insurer assessing any kind of penalty fees.

Cash Value

At the end of the accumulation phase on a deferred annuity contract, you can either cash in your contract or convert the account into a lifetime income stream. Many contracts include guarantees that assure you of a certain level of lifetime income regardless of the contract value at the end of the accumulation phase. However, if you cash in the IRA annuity, you only get the actual cash value of your assessment. If the market performed poorly during the annuity term, you may have less than you started with if you choose to take the lump sum. Therefore, compare the potential lifetime income with the actual cash value of your annuity before you make the decision to roll the money into a different IRA account.

About the Author

Ciaran John began writing in 1994 with contributions to "The Hourly Press" and "The Sawbridgeworth Observer," and has since written for many online and print publications. He has 12 years experience working for financial services companies as a business banker, lender and investment representative and spent four years working in human resources.

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