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Are there tax consequences when you move money from an annuity to a mutual fund?

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Answered 2013-04-13 15:06:49

The answer depends upon whether the annuity was purchased inside an IRA or employer-sponsored ("qualified") plan. If so, then money can be transferred from the annuity to any other investment in that plan (for employer sponsored plans, that means only those investments permitted in that plan; for IRAs, it means any investment you wish to purchase within your IRA) without tax.

There may be surrender chargesimposed by the annuity, but the transfer will not be a taxable event.

If the annuity was purchased outside such plans (with after-tax dollars), then any distribution from the annuity (including a direct transfer to a mutual fund) will be taxable, to the extent of "gain" (contract value in excess of the amount you invested). In addition, if you're under age 59 1/2, there will be a penalty tax of 10% of the distribution (IRC Sect. 72(q)).

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