Retirement planning in Puerto Rico is evolving—fast. With new rules, rising inflation, and ongoing tax considerations, more residents are rethinking how to manage their retirement income efficiently. One powerful tool? Rolling over your annuity into an IRA. But what’s changed in 2025, and what rules still apply?
Let’s walk through everything you need to know before making the move.
What Is an Annuity-to-IRA Rollover?
An annuity-to-IRA rollover involves transferring the value of your annuity contract into an Individual Retirement Account (IRA), allowing your money to grow in a tax-advantaged way. This can provide greater control over investments, lower fees, and a better fit for your retirement timeline.
Puerto Rican retirees especially benefit when transitioning from high-fee or outdated annuity contracts to flexible, tax-deferred IRA accounts.
What Changed in 2025 for Annuity Rollovers?
In 2025, the IRS clarified rules under the SECURE Act 2.0 that impact how annuity owners handle rollovers:
- Faster RMD timelines: Required Minimum Distributions now begin at age 73, impacting rollover timing.
- Qualified Longevity Annuity Contracts (QLACs): In 2025, the contribution cap was raised to $200,000.
- Penalty-free early withdrawals: Expanded exceptions apply for emergencies or terminal illness.
These updates mean more flexibility—but also more complexity. Timing matters more than ever when moving your annuity to an IRA.
What Hasn’t Changed? Key Rules Still in Place
Despite 2025 changes, several core principles remain unchanged:
- 60-Day Rule: You must complete indirect rollovers within 60 days to avoid taxes.
- One-rollover-per-year limit: Applies per person across all IRAs.
- Tax-deferred growth: Still one of the biggest benefits of both IRAs and annuities.
It is crucial to comprehend these regulations in order to prevent expensive tax fines.
Qualified vs. Non-Qualified Annuities: What’s the Difference?
Qualified annuities are funded with pre-tax dollars (e.g., through a 401(k)), while non-qualified annuities are purchased with after-tax dollars.
- Qualified annuity to traditional IRA: Typically tax-neutral but must follow IRS rollover rules.
- Non-qualified annuity to Roth IRA: May incur taxes on gains, so timing and strategy are key.
For Puerto Rico residents, this distinction affects local tax obligations too.
When Rolling Over Makes the Most Sense
Here are smart scenarios where an annuity rollover can work for you:
- You’re retiring soon and want more investment choices.
- You’re consolidating multiple retirement accounts.
- You’re aiming to reduce high annuity fees.
A rollover can unlock growth and flexibility that old contracts often don’t provide.
Also Read : Can You Roll Over an Annuity to an IRA
Mistakes to Avoid During an Annuity Rollover
Many retirees make the same errors. Here are the most critical:
- Taking a distribution instead of a direct transfer: Triggers tax penalties.
- You risk losing thousands if you don’t review annuity surrender charges.
- Overlooking the local tax impact: Especially critical in Puerto Rico, where annuity income may be taxed differently.
Working with a trusted financial advisor can help you avoid these costly mistakes.
Local Considerations for Puerto Rico-Based Retirement Accounts
Puerto Rican tax laws differ from U.S. federal rules in several key ways. If your annuity was purchased through a local retirement program or employer plan, it might not qualify for a federal IRA rollover.
Always work with a knowledgeable advisor who understands the nuances of both the Puerto Rico Internal Revenue Code and U.S. tax rules.
Step-by-Step: How to Roll Over an Annuity to an IRA in 2025
- Review your annuity contract: Know its type, value, and surrender period.
- Contact your annuity provider: Request a direct trustee-to-trustee transfer.
- Choose an IRA account: Traditional or Roth, depending on your goals.
- Start the rollover: To avoid taxes, make sure the money is transferred straight.
- Track the timeline: Especially if it’s an indirect rollover.
This process can be simple—if you follow it correctly.
Annuity Taxation in 2025: What to Expect
- Qualified annuities: Withdrawals are taxed as regular income.
- Non-qualified annuities: Only gains are taxed.
- Puerto Rico-specific rules: May offer more favorable tax treatment under certain conditions.
According to Kiplinger, over 40% of retirees miscalculate the tax impact of rollovers.
Should You Convert Your Annuity to a Roth IRA?
Roth conversions come with pros and cons:
Pros:
- Tax-free income in retirement
- No RMDs
- Estate planning benefits
Cons:
- Upfront tax bill
- Timing sensitivity
Roth rollovers may make sense for high-income earners or those planning to stay in Puerto Rico long term.
Annuity Advisor in Puerto Rico
When considering a rollover, having expert guidance makes a big difference. Look for someone who:
- Understands Puerto Rico and U.S. tax integration
- Specializes in annuity contracts
- Offers tailored retirement income planning
Work with a top retirement planning advisor in Puerto Rico to get peace of mind and maximize your benefits.
Calculate Your Financial Future Today
Want to see how an annuity rollover fits into your bigger picture?
Use the PWR Retirement Calculator to estimate your savings, taxes, and future income. It’s quick, free, and customized.
It’s also a good time to schedule your life insurance consultation in Puerto Rico if legacy planning is part of your financial goals.
Final Thoughts: Get the Timing Right
Rolling over an annuity to an IRA in 2025 can be a smart move—if you plan it right.
It offers more control, potentially lower fees, and better growth opportunities. But the rules are complex, especially when factoring in Puerto Rico’s tax laws and unique retirement landscape.
Want expert help? PWR Retirement Group is a trusted annuity service provider in Puerto Rico ready to help you make sense of the numbers and navigate the transition.
Start by consulting one of the best financial advisors in Puerto Rico who understands the local market and your specific needs.
Your retirement deserves the best. Make 2025 your most confident year yet.
