Transferring a pension to an annuity can turn a one-time lump sum (or a rigid plan payout) into a personal, flexible income strategy that you control. Many retirees prefer an individual annuity because it lets them choose how and when income starts, select survivor benefits, and compare rates across top carriers—while keeping assets tax-deferred during the move.

This guide walks you through eligibility, timing, taxes, and the exact steps to complete a compliant transfer. If you’re still weighing whether to keep the company plan or take the lump sum, first review how a defined benefit plan works to understand the tradeoffs between a plan pension and a personal annuity.

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Who Can Transfer a Pension to an Annuity?

Most transfers happen when a plan offers a lump-sum distribution option at retirement, separation from service, or during a “pension risk transfer” window. Eligible plans include corporate pensions, governmental plans, and cash balance plans that can be paid as a lump sum. If your plan only offers a monthly benefit and no lump sum, ask whether a commuted value is available and under what timing rules.

• Corporate or union pensions: Often provide a one-time lump sum at retirement or termination.
• Cash balance plans: Accrue a stated account value—commonly transferable via direct rollover.
• Governmental pensions: Some offer partial lump sums alongside a reduced monthly benefit.

Why Consider Transferring to a Personal Annuity?

Pensions are reliable, but they’re also rigid. A personal annuity keeps the “paycheck for life” concept while giving you control over timing, riders, and beneficiaries. Key advantages include:

• Lifetime income flexibility: Choose single life, joint life, period certain, or deferred start dates to match your plan.
• Rate shopping power: Unlike a single employer plan, you can evaluate multiple carriers against current annuity rates.
• Beneficiary control: Preserve assets for heirs with modern payout and death benefit options.
• Tax-deferred continuity: Done correctly, a direct rollover maintains tax deferral during the transfer.

Step-by-Step: How to Transfer a Pension to an Annuity

1. Confirm your payout choices: Request a benefits election kit from the plan. Look for lump sum eligibility, timing windows, and survivor options.
2. Decide on income vs. growth: If you want income now, consider an immediate annuity or an income rider. If you want growth and protection, compare fixed and fixed indexed designs.
3. Open the destination account: Your new annuity is established in the appropriate qualified category. The carrier prepares transfer paperwork.
4. Use a direct rollover: Instruct the plan to send funds directly to the annuity carrier, not to you. For background, review what a direct rollover is and why it preserves tax deferral.
5. Elect riders and beneficiaries: Add guaranteed lifetime withdrawal benefits, cost-of-living features, or enhanced spousal benefits as needed.
6. Coordinate start dates: Align income with Social Security and other pensions so your total plan covers essentials reliably.

Tax Treatment and Planning Considerations

A properly executed trustee-to-trustee rollover avoids current taxation. Later, withdrawals from a qualified annuity are taxable as ordinary income. If you’re considering a Roth strategy, understand the immediate-tax tradeoff and how it interacts with future brackets and Medicare surcharges. When in doubt, stage income with the annuity so it complements other sources and keeps you within target tax thresholds.

Which Type of Annuity Fits a Pension Transfer?

• Fixed annuities (MYGAs): Multi-year guaranteed rates for stable growth before turning on income.
• Fixed indexed annuities: Index-linked growth with zero market-loss risk; optional income riders for lifetime payouts.
• Immediate income annuities: Convert the lump sum into a monthly paycheck that can start within 12 months.

When comparing designs, also review guaranteed income strategies to decide how much to annuitize versus how much to keep liquid.

Pension vs. Personal Annuity — At a Glance

Avoid These Common Mistakes

• Taking a check payable to you: This can trigger taxes and withholding. Insist on a direct rollover to the annuity carrier.
• Overlooking survivor protections: If you have a spouse, compare joint-life and period-certain options before electing benefits.
• Ignoring liquidity needs: Map out emergency access and annual withdrawals; review contract features alongside annuity free withdrawal rules.
• Starting income too early: If you’re still working, delaying income may improve long-term payouts and reduce tax drag.

Related Pages

• Annuity Beneficiary Death Benefits
• How the Annuity Exclusion Ratio Works
• Annuity With Inflation Protection
• Pre-Retirement Planning Checklist