Planning For Retirement With A 401k Annuity

Should You Invest In a 401k Annuity?

By Meha Ahmad, InsuranceAgents.com Staff Writer

Individuals who work hard for their money want to see some of it last during their golden years. That means they are probably looking to invest in a 401k or an annuity. Instead of having to choose between the two, some individuals can set up a 401k annuity. To find out more about 401k annuities, you can search online for annuity quotes or talk directly to a life insurance agent.

Breaking It Down: Understanding A 401k Annuity

A 401k annuity is where employees can invest part of their regular 401k payments into an annuity, providing the individual with a guaranteed post-retirement income. With a 401k annuity, the investor can contribute as much as they want each pay period. A 401k annuity allows individuals to make payments a size they are comfortable with, instead of handing their insurance company a huge lump of their savings.

Who would benefit most from a 401k annuity? Employees who don’t have a traditional pension plan in place, or who don’t want to hand over a huge sum of money to an insurance company for an annuity.

Advantages Of a 401k Annuity

• Better deal. Instead of having to pay the high fees and commissions when you shop for an annuity on your own, a 401k annuity can help you find a better deal. If your employer offers a 401k annuity plan, they are probably buying the annuities at institutional prices, which helps you find better deals on annuities. 
• Less of a risk to sharp rate changes. The price and interest rate on your 401k annuity is determined by the average rates during the time you made your investment. That period can include most of the time you worked, reducing the risk that you could be a victim of the sharp ups and downs of interest rates.
• Convenient. Many people who are willing to invest in their future aren’t comfortable giving a large payment to their insurance provider. With a 401k annuity, individuals are allowed to make their investment payments much smaller, more convenient and more manageable.

Disadvantages Of a 401k Annuity

No “roll overs.” If you set up your 401k annuity with one employer’s 401k plan and then plan on changing jobs, you will most likely not be able to roll your 401k annuity into your new employer’s plan. The only way you can is if your new employer offers the same 401k annuity option as your former employer. You still have some options if switching jobs is necessary, but the options aren’t ideal.

• You can leave your 401k annuity with your old employer’s plan. However, you would have to stop contributing money into it, and so you couldn’t continue to build your investment.
• Putting it into an IRA is an option, but there will be some fees to you will need to pay to get it. And you would lose your guaranteed income option.

Obtaining a 401k Annuity

If you’re interested in this option, contact your employer’s 401k administrator. See if they can work with you and set up a 401k annuity plan that suits your needs. If this option isn’t offered, go directly to your employer. At the very least, make the suggestion to them and maybe they will be willing to adjust the current 401k plan to be more accommodating to a 401k annuity. Start comparing rates on an annutiy online using our form.

Published: Wednesday 26th August 2009