Annuities Inside Retirement Accounts for Expats

Yes. Expats should review annuities inside retirement accounts before making decisions about keeping, surrendering, annuitising, rolling over or withdrawing from them.

A review should usually consider:

• whether the annuity is inside an IRA, Roth IRA, 401(k), 403(b), 457(b), TSP or employer plan
• whether the annuity is fixed, variable, indexed, immediate or deferred
• whether the annuity is qualified or non-qualified
• whether surrender charges apply
• whether guaranteed income benefits exist
• whether death benefit guarantees exist
• whether income riders apply
• whether annuitisation has already started
• whether income payments are fixed or variable
• whether investment sub-accounts are suitable
• whether fees are transparent
• whether the contract can be transferred
• whether a rollover is possible
• whether a rollover is suitable
• whether RMDs apply
• whether US withholding applies
• whether local tax applies
• whether the provider accepts foreign addresses
• whether beneficiaries live abroad
• whether income will be paid in dollars but spent in another currency

IRS Publication 575 covers the tax treatment of distributions from pension and annuity plans.

IRS RMD guidance also says retirement plan and IRA account owners generally must start taking required minimum distributions annually when they reach age 73.

That means annuities inside retirement accounts need to be reviewed as both insurance-style contracts and retirement account assets.

Annuities often produce strong opinions.

Some people like the idea of guaranteed income.

Others dislike the cost, complexity and restrictions.

Neither view is enough.

The right question is:

What does this specific contract do, and does it still fit the plan?

A proper review should look at:

• what account holds the annuity
• what type of annuity it is
• when it was purchased
• whether surrender charges still apply
• whether valuable guarantees exist
• whether income riders apply
• whether death benefits are meaningful
• whether fees are reasonable
• whether investment options are suitable
• whether the annuity has already been annuitised
• whether income can be deferred
• whether beneficiaries are current
• whether payments continue to a spouse
• whether the provider can service a foreign address
• whether RMDs can be met
• whether withholding applies
• whether local tax applies
• whether payments are in the right currency

For some clients, an annuity is worth keeping.

For others, the annuity may be expensive, restrictive or poorly aligned with life abroad.

The answer should not be based on a product label.

It should be based on the contract, tax position, retirement income need, spouse protection, currency and future residence.

This page is for general information only and does not constitute personalised financial, tax, legal, investment, pension, retirement, rollover, annuity, insurance, RMD, withholding, estate planning, US tax, local tax or currency advice.

Annuities, retirement accounts, IRAs, Roth IRAs, 401(k), 403(b), 457(b), TSP, fixed annuities, variable annuities, indexed annuities, deferred annuities, immediate annuities, surrender charges, guarantees, income riders, death benefits, annuitisation, rollovers, distributions, RMDs, withholding, beneficiary forms, foreign address restrictions, local tax, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax, legal, pension, annuity, insurance and estate planning advice should also be taken where relevant.

Financial planning should be coordinated with tax, legal, pension, investment, retirement, insurance and estate planning advice where appropriate.

Do not surrender, annuitise, roll over, exchange, withdraw from or restructure an annuity without reviewing tax, charges, guarantees, investment, income, beneficiary, provider and retirement planning implications.

Investing involves risk. Retirement account, pension, annuity and investment values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect the value of annuity income, withdrawals, transfers, tax liabilities and future spending.