Can I Roll Over a Retirement Annuity From One Broker to Another?
Consumers are free to enlist the services of any properly registered and licensed insurance broker, investment adviser or financial planner. Annuity owners are under no obligation to continue working with a representative and may move accounts, policies and money to another industry professional at any time. However, sometimes changing brokers also requires changing annuities, typically in cases where the annuity was initially purchased directly from the insurance company, not from an independent broker.
Obtaining New Representation
If you've become unsatisfied with your current insurance broker or retirement adviser and feel that obtaining new representation is in your best interest, enlisting the services of someone else is simply a matter of completing the right paperwork. As long as your new broker is appointed with the same annuity provider, maintaining the integrity of your account while replacing your representative should be a relatively simple process. However, if you choose to replace your broker by replacing your annuity and moving assets elsewhere, the process may take longer and there are potential negative consequences that must be considered.
A "1035 exchange" refers to the U.S. tax code permitting the transfer of value from one life insurance or annuity contract to another. As long as the new product meets IRS guidelines and is relatively similar to the existing one, you are free to move your money from one product to the next. In the case of annuities, you can surrender your existing contract for another annuity with a different insurance company without fear of IRS penalties or restrictions.
An indirect rollover occurs when your annuity money is not rolled over to the new insurance company, but rather sent to you in the form of check with the expectation that you will deposit those funds into the new account. While the frequency of indirect rollovers is decreasing in lieu of electronic fund transfers, many insurance companies still send these checks to annuity owners. IRS regulations require you to forward the money to the new annuity provider within 60 days, otherwise it's considered a distribution and not a rollover.
Moving your money from one annuity to another may result in surrender charges from the original insurance company. Your contract contains provisions allowing the company to keep a percentage of your annuity value if you close your account too early. Most annuities have surrender periods ranging from seven to 10 years, and the penalty fees commonly range from 7 to 10 percent. These charges decrease by 1 percent annually until finally disappearing. Executing a rollover before the expiry of the surrender period will result in less money for your new annuity.
Careful consideration must be taken when determining the suitability of an annuity rollover. In addition to ensuring the features of the new product are appropriate for your time horizon and risk tolerance, the new annuity's surrender period should be evaluated. While not against regulations, the industry usually frowns upon annuity replacements that generate surrender charges. Regulatory bodies require additional paperwork and clear explanations from brokers, plus acknowledgement from consumers regarding resulting penalty fees.
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.