As financial advisors, our goal is to help clients transition from wealth accumulation to income generation with confidence and clarity. One option that can support this goal is rolling over part or all of a 401(k) into a fixed or fixed indexed annuity. While not suitable for every situation, there are clear scenarios where this strategy can add significant value.
1. The Client Needs Guaranteed Lifetime Income
Clients concerned about longevity risk or lacking a pension may benefit from converting part of their 401(k) into a lifetime income annuity. This provides a predictable stream of income to cover essential expenses and increases their financial security in retirement.
2. They’re Nearing or in Retirement
Once clients reach age 59½, they can roll over 401(k) funds into an IRA annuity without penalties. This is a common time to reduce market exposure and begin building a reliable income plan. Annuities can complement other assets by providing stability as part of a diversified strategy.
3. They’re Risk-Averse and Want Principal Protection
Clients uncomfortable with market volatility, especially near retirement, may prefer fixed or fixed indexed annuities, which offer downside protection and modest growth potential. This can help safeguard their retirement savings and reduce sequence-of-returns risk.
4. They Want to Delay RMDs Using a QLAC
For high-net-worth or tax-sensitive clients who don’t need immediate RMDs, a Qualified Longevity Annuity Contract (QLAC) allows them to defer distributions on a portion of their retirement assets until as late as age 85, enhancing tax efficiency and providing late-life income.
5. They Prefer Simplicity and Predictability
Some clients value the ease of structured income. Annuities can reduce decision fatigue, eliminate emotional market timing, and simplify retirement budgeting through automated payouts.
When It Might Not Be the Right Fit:
- The client is under age 59½ and not retiring soon.
- They prioritize liquidity or flexibility.
- They prefer market exposure and higher growth potential.
- Product fees or surrender terms do not align with the client’s goals.
Bottom Line:
Rolling a 401(k) into an annuity can be a powerful strategy for clients seeking income security, principal protection, and long-term peace of mind. As always, suitability depends on the client’s broader financial picture, retirement timeline, and personal preferences. A fiduciary approach ensures any annuity recommendation truly serves their best interests.