Transferring a profit sharing plan to an annuity allows you to protect your hard-earned savings, maintain tax deferral, and convert your account balance into guaranteed lifetime income. This move gives you control over investment choices, survivor options, and timing of income—flexibility that’s often missing in traditional employer plans.

This guide covers the process, tax treatment, and planning considerations for turning your employer profit sharing plan into a personal annuity. If you’re not yet familiar with plan basics, first review how a profit sharing plan works to understand contribution rules and vesting before completing your transfer.

Estimate Lifetime Income from Your Profit Sharing Plan

Quickly compare payout options and see how guaranteed income from annuities can secure your future.

Who Can Transfer a Profit Sharing Plan?

Profit sharing plans are employer-sponsored defined contribution accounts that can often be rolled over when you retire, leave the company, or reach age 59½. The key is using a direct rollover to a qualified annuity so that the funds remain tax-deferred.

• Active employees: Some plans allow in-service rollovers after a specific age (usually 59½).
• Retirees: You can move your vested balance directly to a qualified annuity.
• Separated employees: Eligible for full rollover of their vested account value.

Why Transfer to an Annuity?

When you transfer a profit sharing balance into an annuity, you gain control, protection, and guaranteed income that lasts as long as you live. Advantages include:

• Tax deferral preserved: Your account remains qualified, avoiding immediate taxation.
• Lifetime income choices: Turn the balance into a guaranteed monthly income stream.
• Principal protection: Fixed and indexed annuities eliminate downside market risk.
• Flexibility: Choose start dates, riders, and survivor benefits that match your goals.

Step-by-Step: How to Transfer a Profit Sharing Plan to an Annuity

1. Request plan paperwork: Contact your plan administrator for a distribution or rollover package.
2. Choose your annuity type: Review fixed, fixed indexed, and income annuities with your advisor.
3. Set up the receiving annuity: The carrier will open the account and provide rollover instructions.
4. Use a trustee-to-trustee transfer: Never take receipt of the check. Learn why in what is a direct rollover.
5. Select payout options: Lifetime income, joint life, or period-certain schedules can all be structured for your goals.
6. Review tax implications: Coordinate timing with other distributions and future income sources.

Tax Treatment and Rollover Rules

A direct rollover to a qualified annuity avoids immediate taxation. However, taking a check payable to yourself can trigger 20% mandatory withholding and create a taxable event. Once in the annuity, distributions are taxed as ordinary income when paid. If you plan to annuitize later, you may delay taxation for years while your balance compounds tax-deferred.

Profit Sharing vs. Annuity Comparison

Common Mistakes to Avoid

• Receiving the funds directly: Always use a direct transfer between custodians.
• Ignoring annuity fees: Understand costs, especially for optional income riders.
• Not aligning income timing: Coordinate with your guaranteed income annuity plan and Social Security start date.
• Overlooking liquidity needs: Read the annuity free withdrawal rules before finalizing the contract.

Related Pages

• Annuity Beneficiary Death Benefits
• Annuity with Inflation Protection
• Best Retirement Income Annuity Options
• Pre-Retirement Planning Checklist