Retirement planning isn’t just about saving—it’s about protecting your assets. An in-service 401(k) transfer to an annuity helps reduce market risk, diversify your portfolio, and secure guaranteed income for the future.

What is an In-Service 401(k) Transfer?

An in-service 401(k) transfer lets you move a portion of your retirement savings from a 401(k) plan into an IRA or annuity without leaving your current employer. Unlike a standard 401(k) rollover, this strategy provides flexibility and access to additional retirement planning tools while you’re still working.

Why Consider Transferring to an Annuity?

For those nearing retirement, protecting and diversifying a retirement portfolio is critical. Annuities offer benefits like lifetime income, growth potential, and protection from market volatility, making them an appealing addition to a diversified retirement plan. Transferring a portion of your 401(k) into an annuity creates a secure income source that’s immune to market downturns, providing a financial cushion.

Key Benefits of an In-Service 401(k) Transfer to an Annuity

Diversification and Stability

Traditional 401(k) plans primarily invest in mutual funds, exposing your retirement savings to market risk. Moving funds into an annuity can help diversify your income sources. Unlike the stock market, which can fluctuate, annuities provide a fixed or indexed income, giving you stable returns over time. This diversification reduces reliance on market-driven assets, helping to secure a stable income stream for retirement.

Maximizing Lifetime Income: Timing is Key

The earlier you transfer your funds into an annuity, the higher the potential income payout. Annuities typically offer higher payouts when the investment has more time to grow within the insurance company’s portfolio. Moving funds sooner benefits your annuity by compounding the interest, potentially leading to a significantly higher lifetime income when you retire. For example, suppose you’re in your late 50s or early 60s and opt for an in-service transfer to an annuity. In that case, the funds will have several years to accumulate value, leading to a better payout rate than if you waited until retirement.

Protection From Market Volatility

When nearing retirement, market volatility can become a serious concern. Annuities provide guaranteed income that isn’t affected by market downturns, offering a stable cash flow no matter what happens in the stock market. By transferring funds to an annuity, you gain peace of mind knowing a portion of your retirement income is shielded from economic fluctuations.

Types of Annuities for In-Service 401(k) Transfers

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Fixed Annuities

Fixed annuities offer a guaranteed interest rate and steady income stream, making them ideal for risk-averse individuals. If security is your primary goal, a fixed annuity can provide reliable returns without market exposure.

Indexed Annuities

Indexed annuities are tied to a stock market index, like the S&P 500, offering growth potential while protecting against market losses. These annuities allow for moderate gains if the market performs well but won’t lose value if the market drops.

Variable Annuities

Variable annuities provide growth by investing in sub-accounts similar to mutual funds. They have higher growth potential than fixed or indexed annuities but come with more risk. However, most variable annuities offer income riders that guarantee a lifetime income stream, regardless of market performance.

Steps to Complete an In-Service 401(k) Transfer to an Annuity

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Check Eligibility

Confirm with your employer’s 401(k) plan administrator that an in-service transfer is allowed. Not all plans permit this type of transfer, so it’s essential to verify eligibility.

Consult a Financial Advisor

Working with an advisor can help ensure this move aligns with your retirement goals. They’ll help you choose an annuity type that complements your existing investments and risk tolerance.

Choose Your Annuity

Decide on the annuity product that best fits your financial goals, whether it’s a fixed, indexed, or variable annuity.

Initiate the Transfer

Complete any necessary paperwork to move funds from your 401(k) to the selected annuity. Most financial institutions will guide you through this process to ensure compliance and proper fund allocation.

No Obligation Consultation

The earlier your funds are placed in an annuity, the more growth potential they have. By choosing an in-service 401(k) transfer sooner, you increase the likelihood of securing a higher payout, offering more substantial income during retirement. This timing flexibility gives you the freedom to strategize and build a well-rounded retirement plan.

Transferring a portion of your 401(k) to an annuity while still employed can enhance your retirement strategy, providing a diversified income source that’s stable and less reliant on market performance. With an annuity, you gain guaranteed income, market protection, and the flexibility to optimize your retirement income as you see fit. By considering an in-service 401(k) transfer to an annuity, you can build a more secure and predictable retirement plan.