Can I Roll Over a Matured Annuity to an IRA?

Though you might be using an annuity to save for retirement, an annuity by itself isn't a qualified retirement plan for tax purposes. That means that unless the matured annuity is currently held in another qualified plan, you can't roll over the proceeds to an individual retirement account as you could the proceeds of another retirement plan, like a 401(k) or 403(b).

Annuities in Qualified Plans

If you're holding the annuity in another qualified plan, such as a 401(k), 403(b) or even another IRA, you're allowed to roll it over into an IRA without any taxes or penalties. The money continues to grow tax-free in the IRA until you eventually take distributions. When you do the rollover, you can either take a distribution and redeposit the money within 60 days into the IRA or you can do a transfer, where the money is paid directly into the IRA.

Other Annuities

Other annuities don't count as qualified retirement plans, so you're not allowed to roll the money into the IRA. Rollovers can only take place between two qualified retirement plans. However, you might be able to use the money from the annuity payouts to make an annual IRA contribution.

IRA Annual Contributions

Having income from a matured annuity won't count as compensation for the purposes of contributing to an IRA. To be eligible to make an annual contribution, you must have income from working -- like wages, bonuses or self-employment income -- or taxable alimony. But, once you're eligible, the IRS doesn't care whether the specific dollars you're contributing come from annuity payouts or paychecks. As of 2013, you can put in up to $5,500 if you're under 50 or $6,500 if you're 50 or older.

Excess Contributions Penalty

If your contributions to your IRA exceed your annual contribution limit, such as if you try to roll over the entire amount of your matured annuity on top of making your regular contribution, the IRS hits you with a 6 percent penalty on the excess. And, the penalty keeps hitting every year that you go without correcting the excess. However, you can avoid the excess contributions penalty if you withdraw the contributions over your annual limit, plus any earnings, before your tax filing deadline. But, your earnings are taxable and are hit with the 10 percent early withdrawal penalty.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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