Asked by Lee  |  Submitted February 09, 2016

What are your thoughts about a partial rollover of a 401(k) plan into a hybrid annuity at age 60?

Report Question Report

  Leave Answer

Sign in to MoneyTips
By submitting you agree to our Terms of Service

  Answers  |  3

February 09, 2016

I would ask you first, is the 401(k) your only way to pay for the hybrid? 401(k) money can be expensive since it is normally 100% taxable. Next I would ask if the long term care benefits are sufficient? Hybrids are not a complete alternative to traditional long term care, but the hybrid is more affordable. Last, rather than a lump sum from your 401(k) I would explore paying for a hybrid life insurance policy instead. With the life insurance hybrid you have the option to spread payments up to your entire lifetime. For my clients, I use only life insurance hybrids.

$commenter.renderDisplayableName() | 09.23.20 @ 07:12


February 16, 2016

Lee, It depends on what you mean by "hybrid" annuity. If you are talking about a fixed index annuity, which is a hybrid of a fixed and a variable annuity, then I'm probably all for it. if you are concerned about income in retirement then rolling out a portion of your 401(k) into a fixed index annuity could be a great idea. Such an annuity, if you got the right riders, would give you both guaranteed growth before retirement and guaranteed income for life during retirement. It can be a great tool for locking in a portion of the income you will need in the future. Doing a rollover rather than a withdrawal would avoid any tax issues.

Regarding the timing of such a move, if your 401(k) just lost a bunch of money during the last 6 weeks, then I might be inclined to let it recover somewhat before making the move.

And, of course, any move like this should first be discussed fully with a qualified financial planner who is familiar with your entire situation, risk tolerance, time horizon, other assets, etc.

$commenter.renderDisplayableName() | 09.23.20 @ 07:12


February 17, 2016

Are you referring to a hybrid annuity as being both a fixed rate and variable rate investment option, commonly known as an equity-indexed annuity? I assume you have separated from service of the company that has your 401(k). There are several factors to consider when moving money out of a 401 plan to a rollover IRA. With a rollover you avoid distribution and taxation on the lump sum. While annuities may have a useful purpose in converting money into a stream of income, many have high internal expenses, restrictions for distributions that exceed a stated percentage, limited investment options and more. You should see the advice of a fee-only CFP/Investment Adviser in your area. Do not be tempted to act on the direction of someone who does not understand your cash flow needs, risk profile and other personal circumstances. These are big decisions and should be made in concert with your short-term and long-term objectives. Best wishes!

$commenter.renderDisplayableName() | 09.23.20 @ 07:12