How do I transfer my variable annuity to a mutual fund without a big tax penalty?

I have $200,000 in a variable annuity series and would like to put it into a mutual fund. How do I do this without incurring a big tax penalty? The annuity will be mature in a couple of months. Are there transfer options?

Annuities, Mutual Funds, Taxes
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10 hours ago
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Taxation will ultimately depend on whether this is a some type of IRA or a Non-Qualified Annuity.  If it is an IRA you can easily transfer it to another account and invest in muutual funds. Make sure to check the surrender charges, and do what you can to avoid / minimize them.

If on the other hand you are in a non-qualified annuity you will need to stay in a non-qualified annuity or liquidate and withdraw the funds. Liquidating will be taxable on the gains - and if you are under 59 1/2 you will  face that pesky 10% IRS early withdrawal penalty.  

If you are in a variable annuity you can still choose sub account to invest similarly to mutual funds. If you are in a fixed annuity or equity indexed annuity you can 1035 exchange the policy to a new variable annuity to invest the way you want.  Make sure to work with a fee only fiduciary financial planner to avoid getting sold the next annuity with the biggest commission. There are some newer fee only annuities with lower fees and no surrender charges.



Best of luck!


David Rae Certified Financial Planner Los Angeles California

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