Example

Gary and Ann, ages 64 and 63 respectively, have had some of their IRA money in a variable annuity for some time. In fact, their $50,000 had accumulated to $200,000. Unfortunately, the variable annuity that they bought did not contain many of the enhanced living and death benefits that many variable annuities currently have today. In fact, because of this, they had rolled their IRA dollars that were in the variable annuity to a money market fund outside of the variable annuity knowing full well that they wanted to “shop” for a better variable annuity.

While their old annuity was out of the surrender charge period, they concluded that a new annuity with a five year surrender charge period, with the surrender charge beginning at 5% decreasing 1% each year to zero percent, but with the enhancements described above might be the way to go.

However, before making the final decision, they consulted with their tax advisor on the preferred way to get the IRA dollars to the new variable annuity. Their advisor recommended an IRA Transfer over an IRA Rollover where the dollars are transferred directly from the trustee of the old plan to the trustee of the new plan. The advisor recommended this since Gary and Ann already did an IRA Rollover when they rolled the dollars out of their old annuity to the money market account.

If Gary and Ann had not sought advice or had received the wrong advice from their agent and rolled over these dollars again, Gary and Ann may have triggered a tax liability in excess of $56,000 since you can only “roll” dollars over once per 12 months..

What can be learned from this? Be careful and rely on the advice of tax and legal advisors.