For part of your money, possibly. For all of it, rarely. And never in the same week someone proposes it.
This recommendation usually arrives at a vulnerable moment. You are retiring or changing jobs, the market feels shaky, and someone offers a way to make the worry stop. That is exactly when to slow down.
What you would be buying
A guarantee. Depending on the type, an annuity can promise an income for life, or protect your balance from market losses, or both. For a person who would otherwise lie awake at night, that has real value.
What you would be giving up
Flexibility. Most annuities charge you to leave in the early years. FINRA notes that surrender periods can run eight years or more. Money you might need for a roof, a health event or a child is harder to reach.
Growth. The guarantee is paid for somewhere. In an indexed annuity it is paid for with caps on your gains. In a variable annuity it is paid for with yearly fees that can stack up to 2% or 3%.
Low costs. Many 401(k) plans hold funds that cost very little. You would be leaving them.
The tax point most people miss
One of the main selling points of an annuity is tax deferral. But your 401(k) is already tax-deferred, and so is an IRA.
The SEC says it directly about variable annuities: held inside an IRA or a 401(k), you get no additional tax advantage from the annuity.
So with retirement money, the only reasons to buy are the guarantees. If the conversation keeps returning to tax benefits, something is off.
The middle path
Work out the gap first.
Add up your basic living costs in retirement. Subtract Social Security and any pension. What is left is the amount of guaranteed income you might want.
If there is a gap and it worries you, a plain income annuity for that amount only can be worth looking at. The rest stays invested and flexible.
That is a very different decision from moving the whole account.
Insure the gap, not the whole account.
Seven questions to ask
How much are you paid if I do this, in dollars?
What are the total yearly costs, including every rider?
What is the surrender schedule, year by year?
If it is indexed: what are the cap and participation rate today, and how low can they be set?
How much can I take out each year without a charge?
What happens to the money when I die?
What would you recommend if you were paid the same either way?
Get the answers in writing and take a week. That is The Pre-Decision: no large money decision on the day it is proposed.
If you decide to go ahead
Make sure the money moves as a direct rollover, from the plan straight to the new account, so nothing is withheld and nothing is taxed. And consider moving a portion, not everything. You can add more later. Getting it back out is the hard direction.
Related questions: should I roll my 401(k) into an IRA, is a fixed index annuity a good idea, variable annuity fees, added up and pension lump sum or monthly payments.
One question for this week: what are your basic monthly costs, and how much of that will Social Security cover? That gap is the only number an annuity needs to solve.
As always, if you want to talk any of this through, the door is open. Genti